Existing home prices surpass income growth for the first time in 14 months
Meanwhile, sales of previously owned homes rose 3% in January, driven by lower mortgage rates.
Sales of previously occupied US homes ticked up in January but remained historically low after 2023 saw the fewest sales in nearly 30 years.
Existing home sales increased 3.1% last month from December to a seasonally adjusted annual rate of 4 million, the National Association of Realtors (NAR) said Thursday. That marked the strongest sales activity since August when 4.04 million sales were recorded.
Year-over-year sales of previously owned homes declined by 1.7% but came in above the 3.97 million predicted by economists polled by Bloomberg.
The median home price increased more than 5% year over year, marking the seventh straight month of annual gains. The median price of $379,100 was the highest for the month of January on record.
The measure outpaced wage growth for the first time in 14 months, the NAR said.
The data underscores how many first-time homebuyers continue to be in dire straits as they try to break into the market. The challenges that crumbled demand last year — tight inventory, climbing prices, and elevated mortgage rates — continue to be a pressure point for would-be buyers.
Read more: Mortgage rates hover around 7% — is this a good time to buy a house?
"The lingering housing shortage is leading to record high home prices," Lawrence Yun, NAR chief economist, told reporters Thursday. "Anytime home prices persistently outpace people’s income growth is not good and definitely not good in a rising interest rate environment."
No relief on home prices
The inventory of unsold existing homes increased 2% from one month ago to 1.01 million at the end of January, equal to three months of supply at the current sales pace. Still, at least six months are needed for a balanced market.
"It’s very little change but indicates a more loosening market where buyers do not have to make a hurried decision or they can look at several choices before deciding," Yun said. "While home sales remain sizeably lower than a couple of years ago, January’s gain is the start of more supply and demand."
Even though the median home price surged to a record high for the month of January, buyers were still active across the country.
For instance, in the West, home sales increased more than 4% from a month ago to an annual rate of 730,000 in January. The average home price was $572,100, up over 6% from a year earlier.
Sales in the South rose 4% from December, while the median price in the South was $345,100, up 4% from January 2023.
Meanwhile, in the Midwest, existing home sales increased more than 2% month over month. The median price was $271,700, up nearly 8% from a year ago.
Sales in the Northeast were unchanged from December at 480,000 units, with homes sold at a median price of $434,300, up more than 10% year over year.
Some of the influx in activity could have been due to easing mortgage rates, which hit a low of 6.60% in January, per Freddie Mac. That figure was down more than a full point from October’s peak rate of 7.79%, sparking hope for sidelined buyers.
"Listings were modestly higher, and homebuyers are taking advantage of lower mortgage rates compared to late last year," Yun said.
All-cash buyers reach 10-year high
As the year kicked off, so did competition.
All-cash sales accounted for 32% of transactions in January, up from 20% in both December and a year ago. That’s the highest share in 10 years, the NAR said.
Individual investors or second-home buyers, which likely make up most cash sales, purchased 17% of homes in January, up 16% from the previous month. Meanwhile, first-time buyers made up just 28% of sales last month, down from 29% in December and 31% a year ago.
According to Yun, the surge of all-cash buyers entering the market may be a reflection of the multiple offers witnessed last month.
"When there is a multiple offer, to make your offer more attractive, you say, ‘I don't have contingency. I don't need a mortgage, here's cash,’" Yun said. "Given the multiple offer situation, maybe people are offering cash."
Those buyers could be sitting on record-high housing wealth, as well as a record-high stock market helping them make a bid on a house, the NAR noted.
"It means that many middle-income families who have to resort to mortgages are at a disadvantage in the current environment," Yun said. "Very few first time buyers have cash."
Homeowners focused on home prices
Home sellers held firm on prices in January, aware that the market is still at their advantage. Some 16% of homes sold above list price last month, the NAR found, indicative of the lingering house shortage.
"I think that lack of supply is fueling home price growth, and I think the lack of supply will also be the reason as to why prices will remain firm and not decline in any measurable way on a national scale basis."
Sales of more affordable homes priced under $100,000 were down 13% in January from a year ago. Homes priced between $100,000 and $250,000 also registered a decline of 8%, the NAR found.
The low share of activity on affordable homes was another sign of a lack of inventory, NAR noted.
Meanwhile, sales of homes priced from $250,000 to the half-million-dollar price point were up 5% while sales of homes priced above $1 million were up 27%.
"To have this low sales activity, it just means that Americans are no longer moving. Whenever they buy a home, they're just staying in one place rather than trade up," Yun said. "The outlook of home prices will depend on supply."
Yun added: "If supply does not appear, we will see an extra perk up in prices. Good for homeowners but not for the country."
Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.