The U.S. Housing market is facing renewed headwinds, with sales of existing homes falling sharply in January and economists warning of a potential “crisis” as affordability challenges and limited supply continue to plague the sector. Sales dropped a wider-than-expected 8.4% from December to a seasonally adjusted, annualized rate of 3.91 million, according to the National Association of Realtors (NAR). This represents the slowest pace since December 2023 and the largest monthly decline since February 2022.
The January sales figure was also down 4.4% compared to January , highlighting a sustained slowdown in activity. While mortgage rates have eased slightly from their peaks, they remain elevated enough to deter potential buyers and the persistent lack of inventory continues to drive up prices.
Lawrence Yun, chief economist for the NAR, characterized the situation as “a new housing crisis,” noting that potential buyers are “still struggling” and “renters are not participating in housing wealth.” He emphasized that the current market is characterized by stagnation, with “Americans…stuck” due to a combination of high costs and limited options.
The decline in sales was broad-based, affecting all regions of the country, but was particularly pronounced in the South and West. This suggests that the challenges facing the housing market are not limited to specific geographic areas.
Despite the drop in sales, home prices remain in positive territory. The median price for a home sold in January was $396,800, up 0.9% year over year and marking the highest January price on record. This increase is attributed to the ongoing shortage of available homes, which continues to put upward pressure on prices.
Yun pointed out that affordability conditions are improving, with the NAR’s Housing Affordability Index indicating that housing is the most affordable it has been since March . This improvement is driven by wage gains outpacing home price growth and mortgage rates being lower than they were a year ago. However, he cautioned that supply has not kept pace with demand, offsetting these gains.
Inventory levels remain constrained, with 1.22 million homes for sale at the end of January. At the current sales pace, this represents a 3.7-month supply, well below the six-month supply considered a balanced market. The limited supply is a key factor contributing to the affordability challenges and the overall slowdown in the housing market.
Homes are taking longer to sell, with an average of 46 days on the market in January, compared to 41 days in January . This indicates that buyers are becoming more cautious and taking their time to make decisions, likely due to the high prices and uncertain economic outlook.
First-time buyers accounted for 31% of sales in January, up from 28% a year ago. While this represents a slight increase, it remains relatively low, suggesting that many potential first-time buyers are being priced out of the market.
Sales continue to be strongest at the higher end of the market, with the only price segment experiencing positive year-over-year growth being homes priced at $1 million or more. Sales dropped the most for homes priced below $250,000, indicating that the affordability crisis is disproportionately affecting lower-income buyers.
The current situation echoes concerns raised in , when analysts highlighted growing household formations, low home inventories, and rapid apartment building growth as key factors shaping the housing landscape. The ongoing inventory shortage, coupled with fluctuating mortgage rates and economic uncertainty, continues to create a challenging environment for both buyers and sellers.
Recent data also suggests broader economic factors are at play. A report from May indicated a sharp decline in U.S. Exports to China, potentially impacting overall economic growth and further contributing to the housing market’s woes. While not directly linked, this illustrates the interconnectedness of global economic forces and their potential impact on the U.S. Housing sector.
Homeowners, however, are in a relatively strong financial position. Yun noted that a typical homeowner has accumulated $130,500 in housing wealth since January , benefiting from the appreciation in home values. This wealth accumulation could provide some cushion against economic headwinds, but it also highlights the growing disparity between homeowners and renters.
The outlook for the housing market remains uncertain. While affordability conditions are improving, the persistent lack of supply and the potential for further economic slowdowns pose significant risks. The coming months will be crucial in determining whether the current slowdown will evolve into a more prolonged and severe crisis.
