U.S. existing home sales fell 4.9% in January to an annual rate of 4.08 million units, a decline larger than economists had expected.
The 4.08 million annualized pace missed the consensus forecast of 4.12 million units. National Association of Realtors Chief Economist Lawrence Yun cited a persistent affordability problem: mortgage rates have stayed elevated near 6.85% even though the Federal Reserve has cut interest rates by a cumulative 100 basis points since September.
That affordability squeeze — higher borrowing costs combined with still-elevated home prices — is weighing on demand. At the same time, single-family housing starts have dropped sharply, indicating that residential investment may be weakening early in 2024.
The Federal Reserve’s cautious approach to further rate cuts appears influenced by concerns that fiscal policies could add inflationary pressure. Measures under consideration by the federal government, such as changes to tariffs, tax policy, and immigration, are factors the Fed is monitoring as it balances support for growth against the risk of boosting inflation. For prospective buyers, the result has been a market where higher rates and elevated prices limit affordability and reduce transaction activity.
Overall, the January sales decline and the fall in single-family starts suggest the housing sector faces headwinds as the year begins. Continued elevated mortgage rates and affordability constraints will be key factors shaping housing market activity and residential investment in the coming months.