Investors with all-cash offers flocked into the housing market before rate hikes, helping to push sales of existing homes to 6.5 million in January at an annualized rate, according to data released on Friday by the National Association of Realtors.
The share of investors jumped 5 percentage points on the month to 22% from 17% in December—the sharpest jump since July 2020.
The large increase in home sales transactions, as a result, caused inventory to reach an all-time low. With only 860,000 unsold homes, market supply can last only about 1.6 months at the current sales pace.
Unlike new houses, the supply for existing houses is more constrained and cannot replenish quickly enough to meet robust demand growth.
Listings were more available at the higher end—homes priced above $500,000—while supply for lower-end homes was depleted.
Despite a 6.7% jump in monthly sales, the median price of existing homes fell slightly on the month to $350,300 from $354,600. That suggests that while the market remained hot, the relative gap between demand and supply has not widened since its peak in July.
To be clear, the market remains a sellers’ market. But the potential of multiple rate hikes this year from the Federal Reserve would certainly slow down the housing market because those increases would drive mortgage rates up. Costlier mortgages would crowd out many potential first-time buyers and non-investor buyers, pushing the opportunity to own a home for millions further out of reach.
The implication of an imbalanced housing market for the economy is significant as housing affordability is a primary economic concern for many Americans.
The takeaway
We believe that as most of the accommodating fiscal and monetary policies fade away, it is of paramount importance that there are focuses on new policies targeting housing affordability and equity. This need is all the more necessary as more Americans look to their homes as a place to work.
