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February 26, 2025

New home sales, which are recorded at the contract signing, plunged 10.5% in January. December sales were revised up to the highest level in eight months. All regions except the West posted lower sales. Mortgage rates peaked just above 7% in the middle of January, further constraining affordability.

The median sales price jumped to the highest level since October 2022. Fewer homes were sold below $400,000 compared to last month. Households able to pay in cash to avoid higher rates or tap home equity have had a much easier time in this market than first-time or lower income buyers.

According to the Federal Housing Administration (FHA), which insures loans to lower income buyers and makes up just over one tenth of all mortgages, over half of its borrowers had debt-to-income ratios of 43% or higher in 2024. This is a precarious position for those households which have already spent down savings and increasingly rely on debt to make ends meet. Growth in spending has been sustained largely by higher income households which are much less sensitive to the costs of housing.

Separately, existing home sales, which are recorded at the contract closing and reflect activity a few months prior, dropped 4.9% in January. Sales were 2% stronger than a year ago while the median sales price rose for the 19th consecutive month. Inventory has been increasing, which is good news but regional discrepancies exist. Larger coastal cities where more young professionals live are significantly undersupplied. Those also tend to be regions where it is costlier to build new housing.