The Home Sales Conundrum

NAR research shows about 5.5 million more households can now qualify for a mortgage compared to a year ago due to lower rates. So, what’s holding buyers back?

Housing affordability is improving, but it’s not prompting a winter rush into the housing market. Pending home sales—a gauge of future home closings based on signed contracts—were essentially in a holding pattern in January, falling 0.8% compared to the prior month and by 0.4% year-over-year, according to the National Association of REALTORS®’ newly released Pending Home Sales Index.

The weather has been blamed as one culprit for last month’s underwhelming sales numbers: Prolonged freezing temperatures and major winter storms swept across the country. Overall, this winter’s housing market mostly has been subdued—a conundrum for a market that was starting to show easing conditions for home buyers.

“Improving affordability conditions have yet to induce more buying activity,” NAR’s Chief Economist Lawrence Yun says about the latest home sales numbers.

Yet, more hopeful buyers may want to take notice: With mortgage rates nearing 6%, an additional 5.5 million households now can qualify for a mortgage—those who couldn’t last year when rates were near 7%.

Still, “most newly qualifying households do not act immediately” when rates drop, Yun says. “But based on past experience, about 10% could enter the market—potentially adding roughly 550,000 new home buyers this year compared with last 

Homeowners don’t appear to be in a rush to sell this winter. Housing inventories for existing homes were down 0.8% in January compared to December and were only up by 3.4% compared to a year ago, backing off what were double-digit annual inventory gains last year.

But with millions more Americans now able to qualify for a mortgage following the recent dip in mortgage rates, a surge of buyers returning to the market might not be entirely positive.

“Unless housing supply increases, these additional potential buyers becoming active in the market could simply push up home prices,” Yun said.