US home sale plunge bottoming out, prices still in freefall

A lengthy plunge in US home sales is likely nearing a bottom – though experts say prices will remain in freefall for some time as a housing correction plays out in overheated markets.

Sales of previously-owned homes fell for the 12th consecutive month in January, falling 0.7% compared to December, according to data released by the National Association of Realtors released this week. Sales were down by a whopping 36.9% compared to the same month one year ago.

The housing market has now largely adjusted to recent interest rate hikes that caused mortgage rates to double last year, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. However, home prices have yet to fully reflect the slowdown.

“Now that the downward adjustment in home sales to response to the initial surge in rates is largely complete, the big story for 2023 will be the speed and extent to which prices follow suit,” Shepherdson said in a note to clients.

The declines could be steep. Pantheon estimates that single-family existing home prices were still “16.5% above their long-run average as a ratio of disposable incomes in January,” according to Shepherdson.

The pace of price declines will depend on how quickly the supply of available homes rises in the months ahead, he added.

Last year, Pantheon predicted that US home prices could fall by up to 20% by the end of 2023. Real estate firm Redfin forecasted a more modest decline of about 4%.

The median sale price of existing homes has declined for eight straight months – plunging from a peak of $413,800 last June to $359,000 as of January, according to the NAR’s data.

However, prices still rose by 1.3% in January compared to the same month one year ago. The overall market hasn’t posted a year-over-year decline in home prices in more than a decade.

Some regional markets are already seeing price declines on an annual basis. In the West region – which includes all states west of Colorado — median prices fell 4.6% to $525,200 in January compared to the previous year.

Current mortgage rates remain stubbornly high at 6.32%.

“Home sales are bottoming out,” NAR Chief Economist Lawrence Yun said in a statement. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”

Yun added that home buyers are “beginning to have better negotiating power” as more properties sit on the market.

“Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price,” Yun said.