Existing home sales surge ahead of rising mortgage rates

Existing Homes Sales Handily Top Expectations

Sales of existing homes jumped 6.7% in January to a 6.5 million-unit annual pace. Sales of single-family homes rose 6.5% to a 5.76 million-unit pace, while sales of condominiums and co-ops rose 8.8% to a 740,000 unit pace. Homes to continue to sell quickly, amidst record low inventories and strong demand from both individual and institutional investors. The median sales price fell slightly from the prior month on a non-seasonally adjusted basis to $350,300, but remains up 15.4% over the past year, with prices for single-family homes up 15.9% year-to-year and prices for condominiums and co-ops up 10.8%.

Buyers Strive to Keep a Step Ahead of Rising Rates

Existing home sales handily beat consensus expectations in January, with overall sales jumping 6.7% to a 6.5 million-unit pace. Sales rose solidly for both single-family homes (+6.7%) and sales of condominiums, townhomes and co-ops (+8.8%). We suspect that buyers rushed to close sales on homes ahead of rising mortgage rates. Pending home sales, which reflect purchase contracts, fell 3.8% in December, following a 2.3% drop in November. Existing home sales, which reflect closings, tend to lag closings by 30 to 60 days, which means January's stronger-than-expected rise must reflect many of that month's buyers speeding up the closing process in order to lock in lower mortgage rates. According to Freddie Mac, the average commitment rate of 30-year conventional mortgages was 3.45% in January, up from 3.10% in December but well below the current 3.92%.

Homes are clearly selling quickly. The average home remained on the market for just 19 days during January, which is the same as December but down from 21 days in January 2021. The National Association of Realtors noted that 79% of homes sold in January were on the market for less than a month. Another reason homes closed so quickly is that cash buyers accounted for a larger proportion of sales. Cash buyers accounted for 27% of sales in January, up from 23% in December and 19% in January 2021.

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