U.S. home sales unexpectedly fell in January, leading to the biggest year-on-year decline in more than three years, as a persistent shortage of houses pushed up prices and kept first-time buyers out of the market.
Uphill Battle for First Time Buyers
The drive home is an uphill battle these days, especially for first-time homeowners who are looking at affordability as a main concern. Although new construction is gearing upward, sticky inventory shortages are skyrocketing prices as existing home sales plummet.
Chief economist for the National Association of Realtors, Lawrence Yun, speaks to this, telling CNBC, “The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month.” Underlying this conclusion, new numbers just out from the NAR show that “existing home sales dropped 3.2 percent to a seasonally adjusted annual rate of 5.38 million units last month. It was the second straight monthly decline and reflected decreases in all four regions,” as reported by CNBC.
Seemingly, the issue at hand is not on the demand side of the market as, according to Yun, “Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year,” a clear indication that homeownership is in as hot pursuit as ever. Sadly though, buyer fire is quickly being snuffed out as affordability constraints and inventory shortages roadblock market momentum at every turn. Yun explains, “It’s very clear that too many markets right now are becoming less affordable and desperately need new listings to calm the speedy price growth.” These slick conditions on the homeownership highway going into spring are leaving some to wonder what the new season will bring.
The Competition is Fierce
Icy affordability pressures are definitely causing potential first-time homebuyers to slip and slide when it comes to moving in on home plate, and the competition is fierce. In fact, experts like Joe Kirchner, Realtor.com senior economist, suggests, “Affordable inventory has been more depleted than expected and the upcoming spring home buying season will likely be filled with bidding wars and multiple offers.”
Sentiments like this advance strong claims in market news such as, “The sharp drop in January home sales was not due to a shortage of homes for sale. It was due to a shortage of affordable homes for sale,” according to a recent report out of CNBC. And, because affordability is of particular consideration to new homeowners, the report states, “That’s a problem, because higher price points are not where the bulk of buyers exist and especially not where most first-time buyers exist.”
This said, the assumption that builders will focus their efforts where the need is greatest is not so safe after all, as CNBC explains, “Unfortunately, the entry-level price point is not where most new home builders exist today, given the significantly higher costs of construction.” With current factors in motion, hope for more than modest sales growth this spring is trailing off like a breeze.