Existing Home Sales chill in January

Summary

Resales retrench as mortgage rates stay high

A chill swept through the housing market in January. Existing home sales declined 4.9% to a 4.08 million-unit pace during the month, ending a three-month streak of gains. January's retrenchment may be owed to harsh winter weather, as cold temperatures kept buyers sidelined. Prospective home buyers may have also become hesitant as a result of increased economic policy uncertainty following the election.

The main driver behind the monthly decline, however, was likely renewed upward pressure on mortgage rates. Despite several federal funds rate cuts from the Federal Reserve, mortgage rates are still close to 7%, essentially unchanged compared to the start of last year. In addition to high rates, low supply continues to drive up home prices and worsen affordability for buyers.

A recent pullback in mortgage demand implies further weakness for home sales in the coming months. After modestly improving in the second half of 2024, MBA's mortgage applications for purchase index has retrenched to start the year and is still hovering well below the level registered in the prior cycle before the pandemic. All told, 2025 is setting up to be another challenging year for the housing market given a restrictive rate environment is likely to persist, preventing a meaningful improvement in affordability.

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