As winter freezes the U.S. housing market, January saw a sharp decline in existing home sales, signaling that the long-running housing crisis may be far from over. According to the National Association of Realtors (NAR), sales of previously owned homes fell 8.4% from December, marking a significant slowdown in activity as the country faces rising home prices and mortgage rates. Experts are concerned this could evolve into a broader crisis, particularly as affordability remains out of reach for many prospective buyers.
The slowdown in home sales comes after a volatile few years in the U.S. housing market, which was first spurred by the COVID-19 pandemic and later by high inflation and rising mortgage rates. With demand high and inventory limited, home prices surged, leaving many buyers priced out of the market. Now, as mortgage rates remain elevated, the sector has become increasingly sluggish, fueling concerns that the crisis is far from over. While some experts see hope for a recovery, others warn that the factors contributing to the downturn, especially affordability, are unlikely to improve anytime soon.
Inventory Shortages Drive Seller’s Market
The drop in home sales is directly tied to the ongoing shortage of available homes, particularly in certain regions of the U.S. The NAR data reveals that nationwide inventory decreased slightly in January compared to December but remained 3.4% higher than the same time last year. Despite this marginal increase, the housing market is still far from balanced. The current supply of homes stands at just 3.7 months, far below the six-month level that typically characterizes a balanced market.
This low inventory continues to contribute to a seller’s market, making it difficult for buyers to find affordable homes. According to NAR Chief Economist Lawrence Yun, the number of homes available for sale is still not keeping up with demand, further driving up prices. “Affordability conditions are improving, with NAR’s Housing Affordability Index showing that housing is the most affordable it’s been since March 2022. This is due to wage gains outpacing home price growth and mortgage rates being lower than a year ago. However, supply has not kept pace and remains quite low.” Yun stated.
This persistent shortage of homes means many potential buyers are left with few choices, further exacerbating the challenges of entering the housing market.
Buyers Hold Back, Waiting for Stability
The broader slowdown in the housing market is also linked to the cautious stance taken by many buyers. According to Lisa Sturtevant, Chief Economist at Bright MLS, the slow pace of pending sales in December reflected buyers’ reluctance to make moves, despite lower mortgage rates. Many buyers, she explained, are holding back, hoping for more stability in both interest rates and home prices before committing to a purchase. This hesitation has resulted in fewer closed sales in January, as many prospective buyers are still waiting on the sidelines for more favorable conditions.
Sturtevant believes there could be more activity in the spring when conditions may improve, citing factors such as lower rates, increased inventory, and slower price growth. However, the long-term outlook remains uncertain. Experts are concerned that without a significant increase in inventory, the market may continue to favor sellers, making it difficult for buyers, particularly first-time homebuyers, to find affordable housing.
