Existing home sales began the year with their first decline in four months. According to the National Association of Realtors (NAR), sales retreated 4.9% from December to a seasonally adjusted annual rate of 4.08 million units in January, the largest monthly drop since November 2022. The latest reading came in below the expected 4.13 million.
Despite the monthly decline, existing home sales are 2.0% higher than a year ago, marking the fourth consecutive month of year-over-year gains following 37 months of declines.
"Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve," said NAR Chief Economist Lawrence Yun. "When combined with elevated home prices, housing affordability remains a major challenge."
"More housing supply allows strongly qualified buyers to enter the market," Yun added. "But for many consumers, both increased inventory and lower mortgage rates are necessary for them to purchase a different home or become first-time homeowners."
Background on Existing Home Sales
Existing home sales measures the monthly sales of previously owned single-family homes. It makes up a huge part of the residential real estate market, as 90% of purchased homes are previously-owned according to the National Association of Realtors. More importantly, there exists a strong correlation between purchases of existing homes and consumer spending. An increase in existing home sales can indirectly stimulate economic activity with increased consumer spending on new furnishings and appliances. Alternatively, a sustained drop in existing home sales often foreshadows a downturn in the economy.
Here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 was previously available in the St. Louis Fed's FRED repository and is now only available for the last twelve months.
Over this time frame, we clearly see the real estate bubble, which peaked in 2005 and then fell dramatically. Sales were volatile for the first year or so following the Great Recession with monthly sales as low as 3.45 million units to as high as 5.44 million units. We have seen that same volatility following the most recent recession, with sales ranging between 3.85 million units to 6.73 million units.
