The January Housing Market Is Booming, But It's Unlikely To Last

Home buyers flocked to the market in January as a result of a dramatic decline in mortgage interest rates, but the benefits might not last long given that rates have since rebounded higher.

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According to the National Association of Realtors, the number of contracts for existing properties that were signed in January increased by 8.1% from December. It has increased over the past two months in a row. Nonetheless, sales were still 24% lower in January 2022 terms.

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Given that it might take up to two months for a signed transaction to finalize, the so-called "pending sales" are the most recent measure of housing demand. Because they were based on contracts signed in November and December, when mortgage rates were higher, the number of closed transactions in January was fewer.

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Mortgage rates are the main cause of the increase in January. The average rate on the well-known 30-year fixed mortgage fell back to just under 6% in January, according to Mortgage News Daily, after reaching a high of just over 7.3% in October, which resulted in a decline in sales.

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The NAR's chief economist, Lawrence Yun, stated that "buyers responded to increased affordability from lowering mortgage rates in December and January."

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But, mortgage rates started to rise once more in February, and as of Friday, the average rate was 6.88%. Sales growth is probably already declining. Throughout much of February, the number of mortgage applications to purchase a home—a weekly barometer of buyer demand—has been declining.

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Sales of newly constructed homes in January were also affected by mortgage rate fluctuations, according to data from the United States. Census Bureau statistics are also based on signed agreements rather than closings. Sales of builders increased by slightly more than 7% from January. Large homebuilders' incentives had a role in some of that, but lower rates increased affordability, particularly for buyers of starter houses.

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Sales may not be able to maintain this level of growth in the future due to rising rates and a historically low supply of available properties for sale.

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Before any further gains take place, the activity in home sales appears to be bottoming out in the first quarter of this year, according to Yun. Yet it won't be until 2024 that home sales start to increase annually. With only a slight shift in the national median home price, home prices will remain stable in the majority of the nation's regions.