Elevated Mortgage Rates and Weather Weigh on Activity to Start 2025
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Home Buying Freezes in January
New home sales declined 10.5% during January, adding to the list of negative housing data to start the year. Positive revisions to sales during the previous month take some bite out of the downside miss. That said, January’s 657K-unit pace of sales was down 1.1% compared to a year-ago, indicating the persistently high mortgage rates are discouraging home buying activity. A lofty inventory-to-sales ratio likely means builders will be cautious in the year ahead as they navigate a moderating macroeconomic environment and changes to trade, immigration and other economic policies.
Sales Weaken as High Rates and Weather Limit Buying
- New home sales ended a two month-string of gains and declined 10.5% to a 657K-unit pace during January. The monthly drop brought sales 1.1% below the pace registered a year ago.
- There were positive revisions to sales in December, which removes some sting from the surprisingly acute fall. What’s more, a similarly sharp pullback in existing home sales during the same period suggests harsh winter weather likely discouraged home buying to start the year.
- That said, the primary factor behind January’s weakness is likely high mortgage rates, which are currently near 7% and little changed over the past year despite the Federal Reserve easing monetary policy.