US existing home sales surprised upward in January, hitting a 3-month high. According to the National Association of Realtors (NAR), they increased by 0.6% MoM, reaching 6.69M (up from 6.65M prior). Housing transactions rebounded despite several factors weighed both on demand and supply.
1. Data construction implies that January reflected 2020 year-end activity that was affected by Covid-19 restrictions
According to the Census Bureau, “the majority of transactions are reported when the sales contract is closed. Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore, an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior.” In other words, most buyers placed their offers in December (and to a lesser extent in November), when the Covid-19 gained traction and forced states to implement restrictions.
2. Housing inventory reached a record low
According to the report, “Total housing inventory at the end of January amounted to 1.04 million units, down 1.9% from December and down 25.7% from one year ago (1.40 million). Unsold inventory sits at a 1.9-month supply at the current sales pace, equal to December’s supply and down from the 3.1-month amount recorded in January 2020.” Downward pressure on housing supply should persist at least until mid-year given that, earlier this week, President Joe Biden extended the foreclosure moratorium and mortgage forbearance through the end of June.
3. Housing prices growth was strong and should gain traction in the coming months
The report also highlighted that “The median existing-home price for all housing types in January was $303,900, up 14.1% from January 2020 ($266,300), as prices increased in every region. January’s national price jump marks 107 straight months of year-over-year gains.” Housing demand should strenghten soon reflecting reopening phase, better economic growth prospects and historical low mortgage rates. As a result, despite having reached a new record, housing prices growth is likely to accelerate in the coming months.