Last year was an exceptional year for the housing market, which boomed in the second half. The January data from the National Association of Realtors shows the continuation of some of the same trends this year, as well as some significant changes and increasing challenges.
Existing home sales hit a seasonally adjusted annual rate of 6.69 million in January, faster than the expected 6.61 million FactSet consensus, and an increase of 0.6% from December’s revised rate. Sales were up 23.7% compared to last January, the release said.
That high percentage shows that the resale market is still popular after home sales boomed in the second half of the year. January’s seasonally adjusted rate is one of the highest since April 2006, the second after the figure reported in October 2020, Lawrence Yun, chief economist with the National Association of Realtors, said in a conference call with reporters.
While single-family sales remained strong at a rate of 5.93 million, apartment and cooperative sales made a bigger leap. Sales of apartments and cooperatives increased 4.1% month over month and 28.8% year over year, compared to single family sales growth of 0.2% month over month and 23% year over year.
“Single family was by far the preferred choice over condominium over the past year,” said Yun, “but now the condominium market is making a comeback.” Single-family homes still accounted for a much larger share of transactions in January, representing 89% of all sales on an unadjusted basis.
Luxury leads the way
Single-family home sales are up 23% compared to last January, but the picture varies by price.
Homes priced between $ 250,000 and $ 500,000 comprise the largest share of homes sold at 40.1%. Sales in this category grew by 27% year over year.
More affordable home transactions have shrunk. Sales of homes priced between $ 100,000 and $ 250,000 were 2% lower than the same month last year, while home sales below $ 100,000 were down 28% compared to last January.
The biggest growth came from homes priced at more than $ 1 million, with sales growing 77% compared to last January. “Sales growth in the upper segment is very strong, while in the low-priced category it is either down or very small,” said Yun.
Buyers’ enthusiasm for higher prices could help explain the median selling price of existing homes of $ 303,900 – a slight drop from previous months, but 14.1% higher than the median price a year ago.
Stock remains tight
A historically tight supply of existing homes for sale could have led to transactions in 2020 – a trend showing little sign of slowing down in 2021. Housing stock has hit another low in the first month of the new year, Yun said on the call. up to 1.04 million units. The supply of months, or how long it would take at the current pace of sales to sell each listed home, remained at 1.9 months, level with December, but lower than 3.1 months last year. “Sales could be even higher, but only inventory just isn’t there,” said Yun.
Strong housing demand and shortage of supply boosted builders in 2020, but by 2021, the industry will face rising costs. Data on new home construction in January released earlier this week showed a dip in the seasonally adjusted pace of housing starts, which the National Association of Home Builders attributed in part to the high price of materials. “We need more inventory,” Yun said over the phone call. “I know [builders] are facing these wood prices and other material costs, but we need to build more houses to get more stock on the net. “
Mortgage interest rates are rising
Low inventory isn’t the only concern hanging over the residential real estate market as it approaches the spring sales season. Rising interest rates may also weigh on sales, Yun said, citing upward pressure on 10-year government bond yields, “a precursor to mortgage rates.”
This is not the first time during the Covid-19 crisis that fears of higher mortgage rates have arisen. Shares of builders fell in October as the 10-year yield rose to a four-month high. At the time, the rise in 10-year interest rates had little effect on mortgage rates due to the unusually wide spread between the two. But the spread would continue to decline.
Mortgage rates started to rise from their lows in early January. Average fixed mortgage rates for 30 years were 2.81% for the past week, the highest since mid-November, according to Freddie Mac. And buyers shouldn’t expect rates to drop, Yun said.
“It is inevitable that mortgage rates will rise in the coming months,” he said, citing factors such as increased stimulus or improvement in the economic outlook as potential contributors to a rising 10-year government bond yield.
While rates will rise, they will remain low by historical standards, Yun says. He predicts that the mortgage interest could average 3% by mid-2021.
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