By Lucia Mutikani

WASHINGTON, (Reuters) – Despite record high inventory and rising prices in the US, U.S. house sales increased unexpectedly in January. But investors are removing first-time home buyers from the housing marketplace.

National Association of Realtors reported a surge in the sales of pre-owned homes on Friday. This likely stemmed from buyers scrambling to complete contracts as they anticipate a higher mortgage rate.

The Federal Reserve will likely increase interest rates in the next month as a way to curb inflation. Mortgage rates are at levels they have not seen since 2019. Analysts anticipate seven rate rises in 2019 according to experts.

Jennifer Lee, senior economist with BMO Capital Markets Toronto said that “this is the rush to get into before borrowing costs go higher.” Unfortunately, the first-time buyer is being priced out by increasing prices.

Last month’s increase in existing home sales reached 6.7%. This was an adjusted seasonally adjusted rate of 6.50million units. The Midwest was the most affordable, and sales rose across all regions. The densely populated South saw sales rise 9.3%, as more people move to the region from elsewhere.

Reuters polled economists and found that sales were expected to decline 1.0%, or 6.10 millions units.

The bulk of U.S. home sales are through home resales. They fell by 2.3% year over year.

A strong housing market is driving sales, despite a growing labor force and huge savings. Because of the shortages and increased prices of inputs such as softwood lumber, cabinets, countertops and appliances, builders have struggled to accelerate construction.

TIGHT SUPPLY

The National Association of homebuilders reported this week that delivery of the products took “months”, which can increase construction costs and delay projects. On Thursday, the Commerce Department announced that there was a record backlog in construction of homes not yet started.

The tight supply keeps house prices high. From a year ago, the median house price rose 15.4% to $350,000.00 in January. The highest price ranges are more popular, and houses are scarcer.

Homes sold for $250,000 or less, which is the most sought-after price bracket, continued to fall.

Last month’s sales were 27% higher than the 33% recorded a year earlier. These buyers may find home ownership more expensive due to higher mortgage rates.

Individual investors and second-home buyers who are able to make large cash sales bought 22 percent of the homes in 2017, up from 15% last year. In order to capitalize on the housing boom, many investors renovate and rent out the houses. 27% were all-cash, as opposed to 19% for January.

Last month’s market saw a record 860,000 homes that were previously owned, down 16.5% from one year ago. It would take 1.6 months for the inventory to be exhausted at January’s pace. This is down from 1.9 month a year earlier.

An average six-to-seven month supply can be considered a healthy equilibrium between demand and supply.

Houses remained for an average of 19 days last January, which is down from the 21 days it took a year prior. Seventy nine percent of the homes that were sold in January remained on the market for less time than one month.