By Shaina Mishkin

Last year was an exceptional one for the housing market, which boomed in the second half. The National Association of Realtors’ January existing-home-sales data show the continuation of some of the same trends this year—as well as some key changes and rising challenges.

Single Family Sales Remain Strong—But Condos Are Making a Comeback

Existing-home sales in January reached a seasonally adjusted annual rate of 6.69 million, faster than the 6.61 million FactSet consensus expected, and an increase of 0.6% from December’s revised rate. Sales were up 23.7% compared with last January, the release said.

That high rate shows the resale market is still hot after home sales shot up in the second half of the year. January’s seasonally adjusted rate is one of the highest since April 2006, second only to the rate reported in October 2020, Lawrence Yun, chief economist at the National Association of Realtors, said on a conference call with reporters.

While single-family sales remained strong at a rate of 5.93 million, condo and co-op sales made a greater leap. Sales of condos and co-ops increased 4.1% month over month and 28.8% year over year, compared with a single-family sales increase of 0.2% month over month and 23% year over year.

“Single family was far preferred over condominium during the last year,” Yun said, “but now the condominium market is making a comeback.” Single-family homes still made up a far greater share of transactions in January, at 89% of all sales on an unadjusted basis.

Luxury Leads the Way

Single-family-home sales jumped 23% compared with last January—but the picture varies by price point.

Homes priced between $250,000 and $500,000 comprised the greatest share of homes sold at 40.1%. Sales in this category grew 27% year-over-year.

More-affordable-home transactions shrunk. Sales of homes priced between $100,000 and $250,000 were 2% lower than the same month last year, while sales of homes under $100,000 fell 28% compared with last January.

The greatest growth came from homes priced above $1 million, sales of which grew 77% compared with last January. “Upper-end sales growth is very strong, while, in the lower priced category, it is either down, or increases are very minor,” Yun said.

Buyers’ enthusiasm for higher price points could help explain existing homes’ median sales price of $303,900—a slight decrease from previous months, but 14.1% higher than the median price one year ago.

Inventory Remains Tight

A historically tight supply of existing homes for sale could have cut into transactions in 2020—a trend that shows little sign of slowing in 2021. Housing inventory set another record low in the first month of the new year, Yun said on the call, falling to 1.04 million units. Months’ supply, or how long it would take at the current sales pace to sell every home listed, remained at 1.9 months, flat with December but down from 3.1 months last year. “Sales could be even higher, but just inventory is simply not there,” Yun said.

Strong housing demand and short supply gave builders a boost in 2020—but, entering 2021, the industry is contending with rising costs. January new-home construction data released earlier this week showed a dip in the seasonally adjusted rate of housing starts, which the National Association of Home Builders attributed partially to the high price of materials. “We have to get more inventory,” Yun said on the call. “I know [builders] are facing these lumber prices and other material costs, but we need to build more homes to bring more supply onto line.”

Mortgage Rates Are Going Up

Low inventory isn’t the only concern hanging over the residential real-estate market as it approaches the spring selling season. Rising rates could also weigh on sales, said Yun, citing upward pressure on the 10-year Treasury yield, “a forerunner for mortgage rates.”

This isn’t the first time during the Covid-19 crisis that fears of higher mortgage rates have arisen. Builder stocks dropped in October as the 10-year yield rose to a four-month high. At the time, the rise in the 10-year yield did little to impact mortgage rates due to the unusually wide spread between the two. But the spread would continue to thin.

Mortgage rates began to increase from their all-time lows in early January. The average 30-year fixed mortgage rate was 2.81% this past week, its highest point since mid-November, according to Freddie Mac. And buyers shouldn’t expect rates to drop, Yun said.

“It is inevitable that, in the upcoming months, mortgage rates will be rising,” he said, citing factors like more stimulus or improving economic prospects as potential contributors to a rising 10-year Treasury yield.

While rates will rise, they will remain low by historical standards, Yun says. He predicts that mortgage rates could reach an average 3% by the middle of 2021.