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Existing home sales in the United States are increasing, with investors pushing out first-time buyers

Existing home sales in the United States are increasing, with investors pushing out first-time buyers

Although home sales in the United States unexpectedly increased in January, investors paying in cash are pushing first-time buyers out of the market due to record low inventory and higher prices. The National Association of Realtors reported a surge in sales of previously owned homes last month on Friday, which reflected buyers rushing to close contracts in anticipation of mortgage rates rising further. Last month, investors accounted for the highest proportion of transactions in six years.

Mortgage rates have risen to levels not seen since 2019, as the Federal Reserve is expected to begin raising interest rates next month in order to contain soaring inflation. Economists predict up to seven rate increases this year. “This is a rush to get in before borrowing costs rise,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, explained. “Unfortunately, first-time buyers are being priced out of the ever-expensive purchase.”
Last month, existing home sales increased by 6.7 percent to a seasonally adjusted annual rate of 6.50 million units. Sales increased in all four regions, with the Midwest, the most affordable region, leading the way. Sales increased by 9.3 percent in the densely populated south, which is seeing an influx of residents from other regions as businesses embrace remote work. Reuters polled economists, who predicted a 1.0 percent drop in sales to 6.10 million units. Home re-sales, which account for the vast majority of home sales in the United States, fell 2.3 percent year on year.

Strong demand for housing, fueled by a strengthening labour market and massive savings, is outstripping supply, putting a damper on sales. Due to shortages and higher prices for inputs such as softwood lumber for framing, as well as cabinets, garage doors, countertops, and appliances, builders have been unable to significantly increase construction. According to a report released this week by the National Association of Home Builders, delivery of these products was taking “months,” increasing construction costs and delaying projects. According to the Commerce Department, the backlog of homes approved for construction but not yet started reached a new high in January.

Stocks on Wall Street were trading lower as tensions in Ukraine grew. The US dollar gained ground against a basket of currencies. Treasury prices in the United States were higher. House prices are being kept high due to a lack of supply. In January, the median existing home price increased 15.4 percent from the previous year to $350,300. Sales remained concentrated in higher price ranges, where houses are more plentiful.

Sales of homes priced at $250,000 or less, the most sought-after price range, have continued to fall. Last month, first-time buyers accounted for 27% of sales, down from 33% a year ago. Rising mortgage rates may make home ownership even less affordable for this demographic. Individual investors or second-home buyers, who account for many cash sales, purchased 22% of all homes. This was the highest share since October 2015, and it was up from 15% a year ago. To take advantage of the hot housing market, investors are renovating homes and either reselling or renting them out. All-cash sales accounted for 27% of all transactions, up from 19% in January of last year.

Last month, there were a record-low 860,000 previously owned homes on the market, a 16.5 percent decrease from the previous year. At January’s sales pace, it would take an all-time low 1.6 months to exhaust current inventory, compared to 1.9 months a year ago. A six-to-seven-month supply is considered a healthy supply-demand balance. Houses were on the market for an average of 19 days in January, down from 21 days the previous year. Seventy-nine percent of homes sold last month had only been on the market for a month or less.

According to Freddie Mac data, the 30-year fixed-rate mortgage averaged 3.92 percent in the week ending February 17, the highest since May 2019. This was up from 3.69 percent the previous week. Rising mortgage rates, economists predict, will contribute to a slowing of sales this year.