US homes sales fell sharply in January, even as mortgage rates continued to ease

U.S. existing home sales plunged in January, marking the sharpest monthly decline in nearly four years as elevated prices and potentially harsh winter weather deterred potential buyers despite more favorable mortgage rates.

According to data released Thursday by the National Association of Realtors (NAR), sales of previously owned homes fell 8.4% from December to a seasonally adjusted annual rate of 3.91 million units. This represents the slowest sales pace since November 2021 and falls well below economists’ expectations of 4.105 million units, as forecast by FactSet.

“The decrease in sales is disappointing,” said Lawrence Yun, NAR’s chief economist. He noted that January’s below-normal temperatures and above-normal precipitation made it challenging to determine if weather was the primary factor or if other market forces were at play.

The sales slump was widespread, affecting all four major U.S. regions. Notably, the West—which was less impacted by January’s severe winter storms—experienced the steepest percentage decline, suggesting that weather alone cannot explain the downturn. Industry analysts point out that most January closings reflect contracts signed in November and December, indicating broader market challenges.

Despite the significant drop in transaction volume, home prices continued their upward trajectory. The national median sales price rose 0.9% year-over-year to $396,800, marking the 31st consecutive month of annual price increases. This persistent price growth continues to present affordability hurdles for many prospective buyers.

The U.S. housing market has been struggling since 2022, when mortgage rates began climbing from pandemic-era lows. This combination of higher borrowing costs, years of price appreciation, and a chronic housing shortage has kept many potential homebuyers on the sidelines. Last year, sales of existing homes remained stuck at 30-year lows.

Transaction volume has hovered around the 4-million annual pace since 2023, significantly below the historical norm of 5.2 million units per year. This prolonged slump underscores the structural challenges facing the market.

There had been signs of optimism heading into 2024, as mortgage rates trended downward in late 2023. The average 30-year fixed mortgage rate briefly dropped to 6.06% in January 2024, its lowest level since September 2022. Though rates have since inched higher, remaining just above 6% this week, they remain nearly a full percentage point lower than a year ago.

However, affordability remains a significant obstacle, particularly for first-time buyers who lack home equity to leverage for their purchase. These buyers accounted for just 31% of January sales, well below their historical representation of 40%.

“Today we have minimal foreclosures, housing wealth continues to build out, it’s just that renters who want to become homeowners are finding difficulty,” Yun explained.

Economic uncertainty is likely another factor keeping potential buyers cautious. While the U.S. economy has shown resilient growth, the labor market has sent mixed signals. Job openings fell in December to the lowest level in more than five years, and government revisions reduced the number of jobs created in 2023 to the weakest total since the pandemic began, despite surprisingly strong January hiring numbers.

The sales slowdown has led to a modest increase in available inventory. There were 1.22 million unsold homes at the end of January, representing a 3.7-month supply at the current sales pace. While this marks a 3.4% increase from January 2023, it remains well below the 5 to 6-month supply traditionally considered a balanced market, and far short of the approximately 2 million homes typically available pre-pandemic.

Market experts anticipate some relief in the coming months as more homes traditionally enter the market ahead of the spring buying season.

“Buyers will find a more favorable market as we head into spring,” said Lisa Sturtevant, chief economist at Bright MLS. “More inventory, lower rates and slower price growth will give buyers more room for negotiation.”

The housing market’s performance remains a critical economic indicator, with implications for construction activity, consumer spending, and overall economic growth. Analysts will be watching closely to see if the January decline represents a temporary setback or signals more persistent challenges in the months ahead.