Existing Home Sales Drop 3rd Straight Month to 3-Year Low

Existing home sales fell to their lowest level since 2015 in January, the third consecutive monthly drop, the National Association of Realtors reported yesterday.

NAR said total existing home fell by 1.2 percent from December to a seasonally adjusted annual rate of 4.94 million in January. Sales are 8.5 percent down from a year ago (5.40 million). Single-family home sales fell to 4.37 million in January, down from 4.45 million in December and 8.4 percent from a year ago. The median existing single-family home price rose to $249,400 in January, up 3.1 percent from January 2018.

Existing condominium and co-op sales rose to 570,000 units, seasonally adjusted, in January, up by 3.6 percent from last month but down by 9.5 percent from a year ago. The median existing condo price rose slightly to $233,000 in January, up 0.1 percent from a year ago.

Of the four major U.S. regions, only the Northeast saw an uptick in sales activity last month, increasing by 2.9 percent to an annual rate of 700,000, 1.4 percent below a year ago. The median price in the Northeast rose to $270,000, up 0.4 percent from a year ago.

In the South, sales fell by 1.0 percent to an annual rate of 2.08 million in January, down 8.4 percent from last year. The median price in the South rose to $214,800, up 2.5 percent from a year ago. Sales in the West fell by 2.9 percent to an annual rate of 1.00 million in January, 13.8 percent below a year ago. The median price in the West rose to $374,600, up 2.9 percent from a year ago. In the Midwest, sales fell by 2.5 percent from last month to an annual rate of 1.16 million in January, down 7.9 percent overall from a year ago. The median price in the Midwest rose to $189,700, up 1.4 percent from last year.

“January’s weak sales pace was likely the result of the lingering effects of stock market volatility and lower consumer confidence toward the end of 2018,” said Joel Kan, Associate Vice President of Surveys and Forecasts with the Mortgage Bankers Association. “Much of the January decrease was in the lower price tiers, which also tends to be where inventory is the tightest.”

Looking ahead, Kan said, MBA expects lower rates and rising entry level supply should lead to more sales, especially for “eager” first-time buyers, who only represented 29% of sales in January, compared to 32 percent in December. “Fundamental drivers of purchase activity, like the strong job market and favorable demographics, also remain in place and should help prospective buyers find success in the coming months.”

NAR Chief Economist Lawrence Yun also sounded a more optimistic note, saying he does not expect numbers to decline further going forward.

“Existing home sales in January were weak compared to historical norms; however, they are likely to have reached a cyclical low,” Yun said. “Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months.”

Zillow Senior Economist Aaron Terrazas agreed. “Another monthly decline to begin 2019 might be tough for some to swallow after a disappointing end to 2018 and months of generally soft sales numbers, but it’s risky to read too much into the January existing home sales data,” he said. “The outlook for mortgage rates has shifted decisively lower over the past two months, so lower rates combined with stronger inventory and more temperate weather bode well for home sales in February and March.”

Mark Vitner, Senior Economist with Wells Fargo Securities, said while winter months are notoriously volatile and difficult to interpret due to large seasonal factors, home buying activity continues to trend lower. “Recent softness is a reflection of the deteriorating affordability seen throughout 2018, alongside low inventories, rising home prices and higher mortgage rates,” he said.

Vitner also noted much of January’s decline in total sales was concentrated in the single-family segment, which declined by 1.8% to 4.37 million-unit pace, while sales of condominiums and co-ops fared slightly better. “That home sales were somewhat weak in January comes as little surprise,” he said. “For the first time since 2010, mortgage rates nearly breached 5.0% in November. Amid higher rates, pending home sales, which are based on signed contracts and lead existing sales by one to two months, slowed in the final months of 2018. The partial government shutdown likely had little direct impact on January sales, but delays in the mortgage underwriting process may slightly weigh on sales in coming months.”

But Vitner also saw a silver lining going into the spring selling season. “While affordability issues remain, home prices continue to moderate and mortgage rates have plunged over 50 basis points to start the year,” he said. “The labor market also remains incredibly resilient, and wage growth continues to track higher. Taken together, these factors point to a modest improvement in existing home sales for 2019.”
Other report data:

–The median existing home price for all housing types in January rose to $247,500, up 2.8 percent from a year ago ($240,800), marking the 83rd straight month of year-over-year gains.

–Total housing inventory at the end of January increased to 1.59 million, up from 1.53 million existing homes available for sale in December, representing an increase from 1.52 million a year ago. Unsold inventory is at a 3.9-month supply at the current sales pace, up from 3.7 months in December and from 3.4 months a year ago. “In particular, the lower end of the market is experiencing a greater shortage and more home construction is needed,” Yun said.

–Properties remained on the market for an average of 49 days in January, up from 46 days in December and 42 days a year ago. Thirty-eight percent of homes sold in January were on the market for less than a month.

–First-time buyers represented 29 percent of sales in January, down from last month (32 percent), but the same as a year ago.

–All-cash sales accounted for 23 percent of transactions in January, up from December and a year ago (22 percent in both cases). Individual investors purchased 16 percent of homes in January, up from 15 percent in December but down from a year ago (17 percent).

–Distressed sales represented 4 percent of sales in January, up from 2 percent last month and down from 5 percent a year ago. One percent of January sales were short sales.