Economic Report: ‘The major question is whether rising rates will quench housing demand’: Existing-home sales surge higher, but could be set for a downturn

The numbers: Existing-home sales increased by nearly 7% between December and January, hitting a seasonally-adjusted, annual rate of 6.5 million, the National Association of Realtors said Friday. Compared to a year ago, sales were down more than 2%.

Economists polled by MarketWatch expected the pace of home sales to come in at 6.1 million.

What happened: Unsold inventory dropped to a 1.6-month supply in January, representing a record low. A balanced marketed is indicated by a 6-month supply of homes.

The supply imbalance is contributing to the higher median prices being reported. As of January, the median sales price for an existing home was up 15% on an annual basis to $350,300. According to National Association of Realtors chief economist Lawrence Yun, the inventory of homes priced at or below $500,000 has dwindled, while supplies of more expensive homes remain more robust.

“There are more listings at the upper end – homes priced above $500,000 – compared to a year ago, which should lead to less hurried decisions by some buyers,” Yun said in the report. “Clearly, more supply is needed at the lower-end of the market in order to achieve more equitable distribution of housing wealth.”

Regionally, sales increased in January in every part of the country, led by a more than 9% surge in the South. Additionally, the South experienced the fastest pace of home-price appreciation in the country, which Yun said was a reflect of migration trends.

The big picture: Time will tell whether the jump in home sales in January is prolonged, or merely a monthly blip. Economists suggested that rising interest rates likely fueled the uptick.

“Mortgage rates have rebounded significantly since the beginning of the year as the Fed is on track to tighten its policy. In this context, several households probably rushed to buy a house as they were concerned that rates will be even higher in a few months,” Christophe Barraud, chief economist strategist at Market Securities France SA, wrote in a blogpost.

Looking ahead: “The major question is whether rising rates will quench housing demand that stems, in large part, from a demographic tidal wave of young households at key home-buying ages,” said Danielle Hale, chief economist at

Market reaction: The Dow Jones Industrial Average 

and the S&P 500 

were both up slightly in Friday morning trades.

This post was originally published on Market Watch

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