LOS ANGELES — The sales of existing homes in the United States saw a decline in January as many potential buyers were deterred by rising mortgage rates and home prices, even though there was a larger inventory of houses available for purchase.

According to the National Association of Realtors, home sales dropped by 4.9% compared to December, bringing the adjusted annual sales rate to 4.08 million units. However, when compared to January of the previous year, sales exhibited a modest increase of 2%, marking the fourth consecutive year-over-year rise. Nevertheless, this figure fell short of economists’ expectations, which predicted a rate of 4.11 million units, as reported by FactSet.

Home prices continued to climb, increasing for the nineteenth month in a row. The national median price for homes sold reached $396,900 in January, reflecting a 4.8% increase from the same month in the previous year.

Lawrence Yun, chief economist for NAR, noted that mortgage rates have remained stubbornly high despite the Federal Reserve implementing several rounds of short-term interest rate cuts. He stated that the combination of high mortgage rates and elevated home prices poses a significant challenge for housing affordability.

The housing market in the U.S. has been sluggish since 2022, when the mortgage rates began ascending from the lows experienced during the pandemic. Last year, sales of previously occupied homes fell to their lowest levels in nearly three decades.

The average rate on a 30-year mortgage temporarily dipped to a two-year low last September but has predominantly remained near 7% in recent months, according to Freddie Mac, which is substantially higher than the 2.65% record low seen over four years ago.

While there has been a slight decrease in mortgage rates recently, this has not sufficiently improved the affordability scenario for many potential homebuyers.

According to the Mortgage Bankers Association, applications for home loans declined by 5.5% last week, reaching their lowest point since the beginning of this year.

Various factors influence mortgage rates, including the yield on 10-year U.S. Treasury bonds, which lenders frequently use as a benchmark for pricing home loans. Concerns over persistent inflation amid a resilient U.S. economy, combined with proposed tariffs and other policies, have pushed the 10-year Treasury yield higher since the election, though it has moderated somewhat in recent weeks.

The combination of rising home prices and elevated mortgage rates can substantially increase monthly costs for borrowers, keeping many potential buyers, especially first-time homebuyers without existing equity, from entering the market. First-time buyers constituted 28% of homes sold last month, unchanged from January 2024 but a decrease from 31% in December. Last year’s annual figure for first-time buyers hit a historic low of 24%, compared to the historical average of around 40%.

If mortgage rates continue to remain at their current levels, first-time buyers are likely to face ongoing difficulties, as Yun pointed out, stating that “housing affordability is not there.”

Economists’ forecasts suggest that the average rate for a 30-year mortgage is expected to stay above 6% throughout the year, with some predicting it could reach as high as 6.8%.

For those buyers who can manage the current mortgage rates, or opt for cash purchases to avoid financing, last month offered a wider selection of homes.

At the end of January, there were approximately 1.18 million unsold homes available, which is a 3.5% increase from December and a significant 16.8% rise from last year. This amount translates to a 3.5-month supply based on the current sales rate, compared to a 3.2-month supply in December and a 3-month supply the previous January. Typically, a balanced market for buyers and sellers is considered to be between a 5 to 6-month supply.

One factor contributing to the increase in inventory levels is the lengthening time it takes for homes to sell. In January, homes were on the market for an average of 41 days before selling, which is the longest duration since prior to the pandemic. In contrast, December saw homes selling after an average of 35 days.

Despite the increased inventory, sellers still maintain a general advantage in the market. About 15% of homes sold last month went for above their asking price, and on average, homes garnered around 2.6 offers.

Looking ahead, Yun predicts that as the spring homebuying season approaches, there could be around 1.5 million homes available on the market. However, he emphasized that the market would ideally need closer to 2 million for a healthier balance.

“We are still supply constrained, but the worst of the supply constraint is over,” he concluded.