8.1% more homes went under contract in Jan than Dec as rates dropped to 6%, but are we doomed now?

 

Eight percent more existing (as opposed to newly built) homes went into contract in January than December as sellers accepted buyer offers. This stat tells you a two key things about the housing market right now.

First, most headlines about January pending home sales say how it’s the most since June 20020. True. Also true that it was the second straight monthly increase in people getting under contract.

But January 2023 new pending deals were down 24.1% compared to last January.

Mortgage rates are reason for both.

Rates peaked late October 2022 at 7.375% and dropped to 6% by the end of January. So buyers and sellers made more deals as people chilled out about inflation driving rates up. Hence 8.1% more buyers and sellers making deals in January.

Last January, rates began at 3.25% and ended at 3.75%. Rates, though beginning to rise then, were SO much lower, hence more deals. And almost nobody then, including the Fed, really thought inflation would spike as bad as it did.

But it did, and the Fed started hiking rates to fight inflation gently on March 15, 2022 (+0.25%), then got way more aggressive, hiking another 4.25% across 7 more hikes from May 2022 to February 2023.

Second, the headlines don’t say much about affordability, and existing home prices have dropped to $359,000.

Even with rates closer to 7% again, this price drop — down from a $413,800 peak last June — means you can qualify for a 5% down home purchase if you make as little as $80k.

See this post for details.

See this post for latest inflation impacts on rates.

And reach out if you have questions.