Some segments of the U.S. residential real estate market started to thaw in January after December’s deep freeze, with a growing number of homeowners listing their homes for sale in a sign that the stubborn “lock-in” effect is finally beginning to ease.
The “lock-in effect” refers to homeowners’ reluctance to sell because they have a low mortgage rate and would have to take out a mortgage at a higher rate when they buy a new home.
Even though the 30-year fixed mortgage rates continue to be high, hovering at just below 7%, homeowners seem to have accepted this new normal and are not letting it stop them.
“While rates remain elevated, it is possible that we might be seeing that chiseling effect starting as sellers may grow tired of waiting for significant changes in rates,” says Realtor.com® Chief Economist Danielle Hale in her January monthly housing report.
“Further, while the lock-in effect remains a factor for many sellers, the strength of the effect is gradually waning,” Hale adds.
Realtor.com projects that home sales will rise by 1.5% in 2025, thanks in large part to the passage of time and slowly decreasing mortgage rates chipping away at the lock-in effect that has been hampering home sales for months.
The latest available data shows that newly listed homes were 10.8% up year over year, making it the busiest January in terms of new listing activity since 2021.
What’s more, freshly listed homes shot up 37.5% compared with December, marking the largest month-over-month spike in five years.
“Time and natural turnover could be leading some sellers to make a move this year despite higher rates,” explains Hale.
Looking at the big picture, overall home inventory across the U.S. was up 24.6% compared with the same time last year, a 15th consecutive month of growth. In terms of raw numbers, there were 829,376 active listings in January, plus 314,545 under-contract listings, also known as pending listings.
On a less positive note, Hale pointed out that inventory was still 24.8% down compared with typical 2017 to 2019 pre-pandemic levels.
Buyers are still reluctant to buy
While home sellers are eager to sell, it seems that homebuyers are still hesitant to buy.
The average home lingered unsold for 73 days, making this January the slowest since 2020. Homes spent five days more on the market than last year and three days more than last month.
Eager to entice unenthusiastic homebuyers, 15.6% of sellers slashed asking prices in January, an increase of more than 1% year over year, according to the analysis.
At the same time, the number of homes under contract but not yet sold continued to rebound in January, inching up 1.8% compared with last year, but it is a far cry from December’s impressive 7.4% uptick.
“This slowdown is at least partially due to mortgage rates in January that were on average 25 basis points higher than in December,” according to Hale.
The uptick in smaller listings dampens median price
The national median list price in January was $400,500, which is about $2,000 lower than last month and down 2.2% compared with January 2024.
A closer look at the type of inventory that’s currently available on the market tells a more complex story.
A greater number of smaller homes were listed in January, which softened the median list price year over year. However, it’s important to note that the median list price per square foot grew by 1.2%, signaling that the home values continue to increase.
Plainly put, while the median listing price might have decreased, it’s only because homes with smaller square footage are showing up on the market.
Southern and Western states have the biggest inventory gains
The Western real estate market saw the biggest growth in listings at 31% in January. The South was not too far behind, with home stock increasing by 27.2% since last year.
Similarly to December, the Midwest and Northeast continued to lag behind, with the number of listings in January going up by 16.8% and 7.8%, respectively.
The good news is that the number of homes for sale was up in all of the largest metros compared with 2024, with Denver (+54.8%), Las Vegas (+49.4%), and Tucson, AZ (+45%), putting in the biggest numbers.
When it comes to new listings, the West surged ahead of all other regions, with fresh inventory there growing by 21.7% year over year, followed by 10.7% in the Midwest, 10.6% in the South, and a more modest 4.5% in the Northeast.
In the West and South, where the growth in home inventory has been the most dramatic, the typical home spent five and six more days on the market, respectively, compared with last year.
Meanwhile, in the Midwest, homes lingered just two days longer on the market than in January 2024, and in the Northeast, the number of days homes spent unsold did not change at all from last year.
Read more at Realtor.com
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