Largest Decline in Existing Home Sales in 3 Years Fueled By Shortage, Price Increases

The National Association of Realtors (NAR) said existing home sales fell for the second straight month, fueled by inventory shortages and rising interest rates and home prices. Total existing-home sales fell 3.2% in January to a seasonally adjusted annual rate of 5.38 million.

That’s a decline from a downwardly revised 5.56 million in December 2017. After last month’s decline, sales are 4.8% below a year ago, the largest annual decline since August 2014 at 5.5% and the slowest pace since last September (5.37 million).

Total home sales are completed transactions that include single-family homes, townhomes, condominiums and co-ops.

“The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” NAR chief economist Lawrence Yun said. “While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace.”

“It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The median existing-home price for all housing types in January was $240,500, an increase of 5.8% from January 2017 ($227,300). January’s price increase marks the 71st straight month of year-over-year gains.

Total housing inventory at the end of January increased by 4.1% to 1.52 million existing homes available for sale. However, that is still 9.5% lower than a year ago (1.68 million) and has fallen year-over-year for 32 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.6 months a year ago).

“Another month of solid price gains underlines this ongoing trend of strong demand and weak supply,” Mr. Yun added. “The underproduction of single-family homes over the last decade has played a predominant role in the current inventory crisis that is weighing on affordability”

“However, there’s hope that the tide is finally turning.”

Mr. Yun is referring to the New Residential Construction report on housing starts and building permits, which has been stronger than expected in recent months. Homebuilder sentiment has also been touching historic highs. It started the New Year nearing an 18-year high.

“There was a nice jump in new home construction in January and homebuilder confidence is high,” he said. “These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses.”

First-time buyers were 29 percent of sales in January, down from 32% in December 2017 and 33% from a year ago.

But another silver lining is that rising wages have not fully impacted the housing market as of yet. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage continued to increase for the fourth straight month to 4.03%, up from 3.95% in December. The average commitment rate for all of 2017 was 3.99%.

“The gradual uptick in wages over the last few months is a promising development for the housing market, but there’s risk these income gains could be offset by the recent jump in mortgage rates,” Mr. Yun added. “That is why the pace of added new and existing supply in the months ahead is worth monitoring. If inventory conditions can improve enough to cool the swift price growth in several markets, most prospective buyers should be able to absorb the higher borrowing costs.”

Regionally, existing home sales in the Northeast fell 1.4% to an annual rate of 730,000 and are now 7.6% below a year ago. The median price in the Northeast was $269,100, which is 6.8% higher than in January 2017.

In the Midwest, they fell 6.0% to an annual rate of 1.25 million in January and are now 3.8% below a year ago. The median price in the Midwest was $188,000, up 8.7% from a year ago.

Existing-home sales in the South decreased 1.3% to an annual rate of 2.26 million in January and are 1.7% below the level a year ago. The median price in the South was $208,200, up 4.3% from a year ago.

Existing-home sales in the West declined 5.0% to an annual rate of 1.14 million in January and are now 9.5% below a year ago. The median price in the West was $362,600, up 8.8% from January 2017.