This past week was relatively quiet in the mortgage market, with no major economic data releases. However, housing sector reports revealed a decline in home sales, largely influenced by bad weather in January. While mortgage rates remained stable, the housing market continued to face challenges due to low inventory, high prices, and economic uncertainty.
Existing Home Sales Drop
According to recent data, existing home sales fell by 5% from December. While this decline was expected, given the severe weather conditions in many parts of the country, it still signals ongoing weakness in the housing market.
Despite the drop in sales, home prices continued to rise. The median existing-home price reached $396,900 in January, marking a 5% increase compared to the same time last year. This sets a new record for January home prices, reinforcing the affordability concerns many buyers face.
One of the main factors affecting the housing market is the lack of available inventory. The supply of existing homes remained at just 3.5 months’ worth of inventory nationwide, which is well below the 6-month supply that typically defines a balanced market. However, there was a slight improvement, as inventory levels were 17% higher than last year.
Home Construction Also Slows
While declining existing home sales were expected, the latest housing starts report was particularly disappointing.
- Housing starts fell by 10% from December, which matched analysts’ expectations.
- Single-family home starts dropped by 8%, showing signs of slower construction activity.
- Building permits, a key indicator of future home construction, remained flat, signaling potential stagnation in new builds.
One of the most concerning trends was a sharp drop in homebuilder sentiment, as measured by the National Association of Home Builders (NAHB). Builder confidence declined significantly in January, reflecting worries over several key issues:
- Uncertainty about tariffs and trade policies
- Rising mortgage rates
- Higher construction costs
These factors continue to challenge homebuilders, making it difficult for them to meet the demand for affordable housing.
Mortgage Applications Reflect Housing Trends
The mortgage market echoed the slowdown in home sales and construction. According to the Mortgage Bankers Association (MBA):
- Refinance applications fell by 7% from the previous week. However, they were still 39% higher than a year ago, as some homeowners took advantage of slightly lower rates compared to early 2023.
- Purchase applications dropped 6% from the prior week, reflecting a cautious approach by homebuyers amid high mortgage rates and rising home prices.
While mortgage rates did not change significantly this week, they remain elevated compared to pre-pandemic levels, adding to affordability challenges for buyers.
What’s Next for the Housing Market and Home Sales?
Investors and economists will be watching for upcoming economic data that could impact mortgage rates and housing trends. Key reports to watch include:
- Consumer Confidence Index (Tuesday): This will provide insight into how Americans feel about the economy, which can influence homebuying activity.
- New Home Sales Data (Wednesday): This report will show whether newly built homes are selling at a steady pace or if higher mortgage rates are slowing demand.
- Personal Income & PCE Price Index (Friday): The PCE price index is the Federal Reserve’s preferred inflation indicator. If inflation remains high, the Fed may delay rate cuts, which could keep mortgage rates elevated.
While the January decline in home sales and construction was expected, it highlights the ongoing challenges in the real estate market. Low inventory, rising home prices, and higher borrowing costs continue to make homeownership difficult for many buyers.
The coming months will be critical in determining whether the housing market can stabilize or if further economic pressures will lead to more declines in sales and construction. Homebuyers, sellers, and investors should closely monitor interest rates, inventory levels, and economic reports to navigate this uncertain market.
