U.S. home sales unexpectedly rose in January, but investors paying in cash are squeezing out first-time buyers amid record low inventory and higher prices.
Existing home sales rebounded 6.7% to a seasonally adjusted annual rate of 6.50 million units last month, the National Association of Realtors said on Friday. Sales rose in all four regions. Economists polled by Reuters had forecast sales decreasing 1.0% to a rate of 6.10 million units.
Home resales, which account for the bulk of U.S. home sales, fell 2.3% on a year-on-year basis.
Strong demand for housing against the backdrop of a strengthening labor market and massive savings is outstripping supply, curbing sales. Builders have been unable to significantly ramp up construction because of shortages and higher prices for inputs like softwood lumber for framing as well as cabinets, garage doors, countertops and appliances.
According to a report this week from the National Association of homebuilders, delivery of these products was taking “months,” raising construction costs and delaying projects. The Commerce Department reported on Thursday that the backlog of homes approved for construction but yet to be started surged to a record in January.
Tight supply is keeping house prices elevated. The median existing house price increased 15.4% from a year earlier to $350,300 in January. Sales remained concentrated in the upper price end on the market.
First-time buyers accounted for 27% of sales last month, compared to 33% a year ago. Individual investors or second-home buyers, who make up many cash sales, purchased 22% of homes in January, up from 15% a year ago. All-cash sales accounted for 27% of transactions in January compared to 19% in January 2021.
There were a record low 860,000 previously owned homes on the market last month, down 16.5% from a year ago. At January’s sales pace, it would take an all-time low 1.6 months to exhaust the current inventory, down from 1.9 months a year ago.
A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
Housing could become less affordable, especially for some first-time buyers, with mortgage rates rising to levels not seen since 2019. They, however, remain low by historical standards.
Mortgage rates are climbing as the Federal Reserve is expected to start increasing interest rates next month to tame high inflation. Economists are anticipating as many as seven rate hikes this year.
In January, houses typically remained on the market for 19 days, down from 21 days from a year ago. Seventy-nine percent of homes sold last month were on the market for less than a month.
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