Key Takeaways:
- All four regions register gains, led by the South;
- Surprising growth in light of record-low inventories;
- Rising mortgage rates, higher home prices and less inventory likely to result in lower home sales going forward.
By Manuel Gutierrez, Consulting Economist to NKBA
Existing home sales jumped an unexpected 6.7 percent in January to a 6.5 million unit annual rate. This is the highest level of activity in a year (Figure 1.) and a reversal from the 3.8 percent sales drop in December 2021. Previously, sales had been slowly increasing since May of last year, ranging between a 6.0 and 6.5 million sell rate over that period.
All four regions saw increases in home sales, led by the South, with a 9.3 percent gain for a 3.94-million-unit annual rate. The South traditionally accounts for the highest share of U.S. home sales and contributed 45 percent of the January 2022 total. Lowest sales gains were in the West and Midwest regions, each increasing 4.1 percent for the month. The Northeast posted a slightly higher gain over the national increase, with sales jumping 6.8 percent to 780,000.
The number of existing homes available for sale has plunged by 34 percent since the middle of 2021.
The brisk sales pace occurred despite a smaller number of homes for sale. Inventory dwindled to just 860,000 units in January, with 20,000 fewer units than the previous month. In fact, the inventory of homes for sale has been steadily declining since the middle of 2021 when 1.31 million homes were available. At the current sales pace, inventory is sufficient to maintain a historic low of just 1.6 months of sales.
Home prices in January 2022 were 12 percent higher than the previous year (Figure 3.), with the average sales price being $369,000. Regionally, percentage gains were quite similar. They ranged from 13 percent in the South and Midwest, to 10 percent in the West.
Interest rates have been rising over the last three months. The 30-year, fixed mortgage rate recently reached 3.92 percent, almost one percentage point higher than early November 2021 levels. The combination of higher mortgage rates, rising home prices and low inventory are likely to put the brakes on home sales.
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