You can't buy what's not for sale, and that economic truism applies to houses. The pace of home sales accelerated in January, but even more houses would have been sold if more homes were up for sale.
Houses go fast, reflecting low supply
Existing home sales rose to a seasonally adjusted annual rate of 6.69 million units, according to the National Association of Realtors. At the end of the month, just 1.04 million homes were on the market — a record low. At January's sales pace, it would take only 1.9 months to sell all the for-sale homes. That tied the previous month's record low housing supply.
With such a small inventory of homes for sale, sellers don't have to wait long. Homes typically stayed on the market for 21 days in January. A year earlier, the typical time on market was more than twice as long: 43 days. When 71% of homes are sold in less than a month, the sellers are in control.
Prices keep moving up
The median home price in January rose 14.1% from 12 months before, to $303,900. This marks six months in a row of double-digit price increases year over year.
First-timers constituted 33% of buyers in January. That's more than the 2020 first-time home buyer share of 31%. Because first-time buyers tend to buy less expensive homes, they might have held down the median price somewhat.
The first-time buyer share crept up in January because that population group is highly motivated, even in winter weather. People who are looking to buy their first home are willing to trudge through snow and miss NFL playoff games to look at houses, whereas homeowners are more likely to cozy up and await the spring.
What it means for buyers and sellers
Last spring saw a COVID-related slowdown in price increases. The median home price went up just 1.9% in May compared with 12 months earlier. But home prices zoomed when shutdowns and restrictions eased in summer. They haven't fallen back since then.
Normally, you would expect rising prices to nudge homeowners to put their homes on the market so they can cash out their capital gains. But the minuscule supply of homes on the market seems to be deterring owners from selling their homes. Would-be sellers worry that they won't be able to find replacement homes, whether their goal is to move up, downsize or relocate.
This dynamic creates a self-reinforcing cycle in which the scarce supply of homes forces prices upward and the lack of choices discourages owners from listing their homes, which contributes to the scarcity of homes for sale, which pushes prices upward. The Biden administration is considering a first-time home buyer tax credit, but it might want to create instead an incentive for owners to sell their homes.
Media: If quoting from this Commentary, the source is Holden Lewis, NerdWallet mortgages expert.