January Sales of Previously Occupied Homes Slip as High Mortgages and Prices Freeze Buyers Out

The housing market has experienced a significant slowdown in recent months, with January sales of previously occupied homes slipping due to high mortgage rates and rising home prices. According to the National Association of Realtors, existing home sales fell by 0.7% in January compared to the previous month, marking the fourth consecutive month of declines. This slowdown is a stark contrast to the robust housing market experienced during the pandemic, when low interest rates and high demand drove home prices to record highs.



The primary factors driving the current slowdown in the housing market are high mortgage rates and rising home prices. Mortgage interest rates have risen significantly since the pandemic, from a low of 2.65% in January 2021 to around 6.2% in September 2024. This increase has made homeownership less affordable for many Americans, with the monthly principal and interest payment on a $400,000 loan increasing by over $1,200 from trough to peak, a 78% increase (Freddie Mac, 2024). Additionally, home prices have continued to rise, exacerbating the affordability issue. Between 2021 and 2023, the payment on a median-priced home with a 5% down payment increased by $1,532 or 113% (Freddie Mac, 2024).

The combination of high mortgage rates and rising home prices has drastically changed housing affordability for the typical household. In 2019, the typical household earning $69,000 a year could buy the median home on the market and expect to spend about 26% of their monthly income on the principal and interest (P&I) payments for their mortgage. However, as interest rates rose, homeownership became less affordable for many Americans. Higher interest rates also meant fewer homes were available for sale because homeowners who had locked in low-rate mortgages were hesitant to move, creating a "lock-in" effect. This lack of inventory, combined with increased demand from first-time homebuyers and investors, has driven up home prices, further exacerbating the affordability crisis.

The segments of the population most affected by these increases are lower-income households, first-time homebuyers, and minorities, who are disproportionately represented among renters and have less access to credit and financial resources. According to a study by the National Association of Realtors, the homeownership rate for African Americans fell to 42.9% in 2021, the lowest level since 2004, while the homeownership rate for Hispanics fell to 47.7%, the lowest level since 2010 (National Association of Realtors, 2022).

The slowdown in existing home sales is also being driven by low inventory, with the supply of existing homes for sale well below the 4-6 months considered a balanced market. In 2024, the inventory of existing homes was around 1.2 months, further limiting the number of available options for buyers (National Association of Realtors, 2024). Additionally, economic uncertainty, including factors like inflation and potential job losses, can also deter potential homebuyers from making a purchase.

In conclusion, the January sales of previously occupied homes slipping is a clear indication of the challenges facing the housing market. High mortgage rates and rising home prices have made homeownership less affordable for many Americans, particularly lower-income households, first-time homebuyers, and minorities. The lack of inventory and economic uncertainty are also contributing factors to the slowdown in existing home sales. As the housing market continues to evolve, it is crucial for policymakers and industry stakeholders to address these challenges and promote affordability.