R
ising home prices and stubbornly high mortgage rates are causing prospective buyers to hesitate. According to the National Association of REALTORS, existing-home sales declined nearly 5% in January compared to the previous month, but still rose 2% from a year ago. This modest increase suggests that 2025 may mark a turnaround for the housing market after last year's record-low home sales.

    "Mortgage rates have been stuck despite multiple interest rate cuts by the Federal Reserve," says NAR Chief Economist Lawrence Yun. "Combined with high home prices, affordability remains a significant challenge." A family earning the national median income of $97,800 would spend 37% of their income on mortgage payments for a median-priced existing home and 38% to buy a new one.

    Home prices continue to rise: The median existing-home sales price in January increased nearly 5% from last year to $396,900. All four major regions posted home price gains, with the Northeast leading at 9.5%. Higher prices may be creating a market divide between homeowners and renters, with a median net worth gap of $415,000 for homeowners versus $10,000 for renters.

    First-time buyers face significant hurdles entering the market. They comprised just 28% of sales in January, down from 31% in December 2024. First-timers are unable to leverage the sale of a previous home, leaving many sidelined as they continue to save up and delay their entrance into homeownership. Other buyers are bypassing elevated mortgage rates: All-cash buyers accounted for nearly 30% of transactions in January.

    The inventory of unsold existing homes increased 3.5% in January compared to the prior month and a notable 16.8% from a year ago. However, Yun notes that the market still needs another 30% growth in inventory to reach pre-pandemic levels. Homes continue to sell quickly: 47% of NAR members report their listings selling in less than a month, with 15% selling above list price and an average of 2.6 offers per listing.

    Regional sales data shows that existing-home sales decreased in three of the four major regions last month, while holding steady in the Midwest. Here's a breakdown by region:

    * Northeast: Existing-home sales fell 5.7% from December 2024 to an annual rate of 500,000, up 4.2% from a year ago.

    * Midwest: Sales were unchanged at an annual rate of 1 million, up 5.3% compared to last year.

    * South: Existing-home sales fell 6.2% from December 2024 to an annual rate of 1.83 million, essentially identical to last year's level.

    * West: Existing-home sales declined 7.4% month over month to an annual rate of 750,000, up 1.4% from a year ago.