Tight Inventory of Homes to Buy Leads to Dip in Home Sales

January’s dicey weather usually makes it a volatile month for home sales. But this year, rising home prices and tightening inventory led to a dip in the number of homes sold nationally.

Existing home sales dropped a bit in January, but properties were still selling at a brisker pace than they were a year ago, data from the NATIONAL ASSOCIATION OF REALTORS® show.

The housing market got off to a somewhat disappointing start to begin the year with January closings down 4.9% nationally compared with December 2014, according to NAR Chief Economist Lawrence Yun. The median existing home price for all housing types hit $199,600, which is 6.2% above January 2014. This marks the 35th consecutive month of year-over-year price gains.

“Although sales cooled in January, home prices continued solid year-over-year growth,” Yun said. “The labor market and economy are markedly improved compared with a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.” 

Home sales are often volatile in January. This year, low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows, he said. “REALTORS® are reporting that low [interest] rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions,” Yun added.

FHA Condo Issues

Existing condominium and co-op sales declined 3.5% in December, and are now 1.8% below a year ago. The median existing condo price was $198,300 in January, which is 5.3% higher than a year ago.

Many first-time buyers opt for condominiums and use Federal Housing Administration loans because the program requires only a 3.5% downpayment. However, an FHA borrower can only buy in “approved” condominium developments. And, because the process for getting an FHA condo approval is currently too tough, too few projects are gaining FHA approval, said NAR President Chris Polychron.

“Condominiums offer an affordable option and are the first step to homeownership for many homebuyers,” Polychron said. “NAR has urged the FHA to develop policies that will give buyers access to more flexible and affordable financing opportunities and a wider choice of approved condo developments.”

Who’s Buying Homes?

All-cash sales were 27% of transactions in January, up from 26% in December but down from 33% in January of last year. Individual investors, who account for many cash sales, purchased 17% of homes in January, unchanged from last month and below January 2014 (20%). Sixty-seven percent of investors paid cash in January.

Distressed sales — foreclosures and short sales — were 11% of sales in January, unchanged from last month but down from 15% a year ago. Eight percent of January sales were foreclosures and 3% were short sales.

Foreclosures sold for an average discount of 15% below market value in January (unchanged from December), while short sales were discounted 12% (also unchanged from last month).

Time on Market

Home TypeMedian Number of Days on Market
All homes69
Short sales128

January 2015 Regional Existing Home Sales

 Sales Volume Compared with Jan. 2014Median Price Jan. 2015Median Price Compared with Jan. 2014
NortheastUp 3.3%$247,800Up 2.7%
MidwestUp 0.9%$151,300Up 8.2%
SouthUp 5.6%$171,900Up 7.4%
WestUp 1.0%$291,800Up 7.2%