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Sales of previously owned homes in January rose 6.7% from December to a seasonally adjusted annualized rate of 6.5 million units, according to the National Association of Realtors. That exceeded Wall Street expectations significantly. Sales were 2.3% lower compared with January 2021.

The supply of homes for sale fell to a record low, down 16.5% from a year ago. There were just 860,000 homes for sale at the end of January. At the current sales pace it would take just 1.6 months to exhaust that inventory. A 4 to 6-month supply is considered a balanced market. That is also a record low.

“Seller traffic is very very low, implying that inventory is struggling to make the turn. Realtors are indicating multiple bidding wars are still happening,” said Lawrence Yun, chief economist for the Realtors.

Tight supply and strong demand pushed the median price of a home sold in January to $350,300, an increase of 15.4% from January 2021.

That price is being somewhat skewed by the fact that the bulk of sales activity is on the higher end of the market. Supply is leanest on the low end. Homes priced between $100,000 and $250,000 were down 23% from a year ago, while sales of homes priced between $750,000 and $1 million rose 33%. Sales of homes priced above $1 million were up 39%.

Homes are also selling fast, with an average 19 days to go under contract. One year ago, when the market was also strong, days-on-market was 21.

These sales are based on contracts signed in November and December, before mortgage rates began to rise sharply. The average rate on the 30-year fixed loan was around 3.2% during that time. Now it is just over 4%, according to Mortgage News Daily.

The share of sales made all in cash rose to 27% from 19% a year ago. Part of that may be due to a rise in the investor share to 22% from 15% a year ago.

“Investors are really popping out, and this may be why we’re seeing a pop in home sales,” said Yun.

“The major question is whether rising rates will quench housing demand that stems, in large part, from a demographic tidal wave of young households at key homebuying ages,” said Danielle Hale, chief economist for Realtor.com. “Our expectation is that we’ll continue to see home sales at a relatively high level throughout 2022, as post-pandemic shifts like rising workplace flexibility enable would-be buyers to expand their geographic search horizons and find an affordable place to call home.”

Sales of newly-built homes, which are counted by contracts signed during the month not closings, jumped nearly 12% in December from November. Buyers are turning more to new construction because of the very low supply of existing homes for sale. Unfortunately builders are not keeping up with demand, as supply chain and labor issues slow production.

NEW YORK — St. Louis Federal Reserve President James Bullard cautioned Thursday that without central bank action on interest rates, inflation could become an even more serious problem.

“We’re at more risk now than we’ve been in a generation that this could get out of control,” he said during a panel talk at Columbia University. “One scenario would be … a new surprise that hits us that we can’t anticipate right now, but we would have even more inflation. That’s the kind of situation that we want to … make sure it doesn’t occur.”

Bullard has made news lately with his calls for aggressive Fed action. He has advocated for a full percentage point in rate increases by July in an effort to stem price surges that are running at the fastest pace in 40 years.

In his remarks Thursday, Bullard repeated his assertion that the Fed should “front-load” rate hikes as way to get ahead of inflation running at a 7.5% clip over the past year.

Fed officials had been resisting tightening policy, insisting for much of last year that the current run-up in prices was tied to pandemic-specific factors, such as clogged supply chains and outsized demand for goods over services, and would fade over time.

“Overall, I’d say there’s been too much emphasis and too much mindshare devoted to the idea that inflation will dissipate at some point in the future,” Bullard said. “We’re at risk that inflation won’t dissipate, and 2022 will be the second year in a row of quite high inflation. So that’s why given this situation, the Fed should move faster and more aggressively than we would have in other circumstances.”

The Fed has indicated it likely will start raising interest rates in March, which would be the first increase in more than three years. After that, markets are looking for an additional five or six increases in 25 basis-point increments. A basis point is equal to 0.01%.

Bullard said the upcoming change in policy shouldn’t be viewed as an attempt to restrict the markets and the economy.

“It’s not tight policy. Don’t let anybody tell you it’s tight policy,” he said. “It’s removal of accommodation that will signal that we take our responsibility seriously.”

Market pricing for rate hikes has tempered over the past day or two, particularly after a release Wednesday of the January meeting minutes of the Federal Open Market Committee showed officials are looking to take a measured approach toward the removal of policy help.

Traders are now pointing to a 25 basis-point hike in March after previously looking to a 50 basis-point move, according to CME data. The probability for seven hikes dropped Thursday to 43% after approaching 70% earlier in the week.

Supply chain issues for homebuilders appear to be getting worse, and that is weighing on confidence in the industry.

Builder confidence in the single-family, newly built housing market fell 1 point in February to 82 on the National Association of Home Builders/Wells Fargo Housing Market Index. That is the second straight month of declines. Anything above 50 is considered positive. The index stood at 84 in February 2021.

“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” said NAHB Chairman Jerry Konter, a builder from Savannah, Georgia. “These delivery delays are raising construction costs and pricing prospective buyers out of the market.”

Surging lumber prices are also adding thousands of dollars to the cost of new homes.

Homebuyers are already contending with rising interest rates. The average rate on the popular 30-year fixed mortgage just crossed over 4%, well over a full percentage point higher than it was a year ago. Add higher rates to higher home prices, and some buyers are simply unable to afford it. This is why rental demand is currently so high.

“Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard,” said Robert Dietz, NAHB’s chief economist. “Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”

Of the index’s three components, current sales conditions increased 1 point to 90, and sales expectations in the next six months fell 2 points to 80. Buyer traffic fell 4 points to 65.

Regionally, on a three-month moving average, sentiment in the Northeast increased 3 points to 76. In the West it rose 1 point to 89, and in the Midwest it fell 1 point to 73. Sentiment in the South dropped 1 point to 86.