US home sales in January bear the brunt of Federal Reserve’s hawkishness

22 Feb 2023 , 03:26 PM

Sales of existing homes in US in January fell year-on-year by 36.9%. On a month – on – month basis, the decline was of 0.7%. 4 million existing homes were sold in US in January. This is the lowest level of monthly sales in more than 12 years. This is also the 12^th straight month of decline in existing home sales in the country.

Home sales are going down because of increase in interest rate taken on mortgage loans for purchasing these homes. These increases have happened because of successive interest rate hikes by US Federal Reserve in the past one year. Average fixed interest rates on home mortgage loans in US have currently risen to 6.32%. 

Median price of homes sold increased year-on-year by 3.9% in January. Median price of homes sold in January stood at $359,000. This means that half the existing homes sold during the month were sold at a price of less than $359,000. And half of them were sold at a price of more than $359,000. 

Successive interest rate hikes by US Federal Reserve has made it much more expensive to buy homes in US. Buyers have to pay a higher interest rate on loans that they take for buying these homes.  The increase in interest rates is accompanied by higher inflation. This higher inflation has the impact of reducing the real income of people. 

Yesterday, US equity markets fell sharply after Home Depot said that it expects its sales to remain flat this year because of slump in the housing market. Home Depot is a retailer of home improvement products.  A slump in the housing market affects other sectors of the economy too.