Existing Home Prices Outpace Income Growth After 14 Months

In January, sales of previously owned homes in the United States saw a slight uptick, reaching a seasonally adjusted annual rate of 4 million, the highest since August. However, compared to January 2023, sales dropped by 1.7%, continuing a trend of lower sales volumes over the past two years.

Despite the year-over-year decline, the median home price rose by more than 5%, hitting a record high of $379,100. This increase marks the seventh consecutive month of annual gains in home prices. The rise in prices, coupled with historically low sales, highlights the ongoing challenges faced by first-time homebuyers entering the market.

The inventory of unsold existing homes increased slightly in January to 1.01 million units, representing a three-month supply at the current sales pace. While this is an improvement from previous months, it falls short of the six-month supply needed for a balanced market.

Regional variations in the housing market were evident, with the West seeing a 4% increase in sales, the South experiencing a 4% rise in median prices, and the Midwest recording a 2% increase in sales. Meanwhile, the Northeast saw no change in sales but a significant increase in median price.

The influx of activity in January could be attributed to easing mortgage rates, which hit a low of 6.60%, down from October’s peak of 7.79%. This decrease in rates has sparked hope for sidelined buyers, prompting them to take advantage of lower borrowing costs.

Despite the increase in sales activity, all-cash transactions accounted for 32% of sales, the highest in a decade. This surge in cash buyers, including investors and second-home buyers, may be driving up competition and making it more challenging for first-time buyers relying on mortgages.

Looking ahead, the housing market’s trajectory will depend largely on supply. With the current lack of inventory, home prices are expected to remain firm, posing a challenge for middle-income families reliant on mortgages. The outlook for home prices will hinge on the ability to increase supply, which remains uncertain at this time.