Existing Home Sales at Nine-month Low

Existing Home Sales at Nine-month Low

U.S. home resales fell sharply to their lowest level in nine months in January caused in part by tight inventories. Lack of inventory is also keeping prices elevated while sidelining first-time buyers from the market. This drop in sales activity could lower expectations for acceleration in housing activity this year.

The National Association of Realtors recently reported that existing U.S. home sales declined 4.9 percent to an annual rate of 4.82 million units, the lowest level since last April.

The decline in sales, which was across all four regions, came despite the 30-year mortgage rate falling to a 20-month low. It was worse than economists’ expectations for a 4.97 million unit-pace.

There is hope a tightening labor market would spur sturdy wage growth and pull first-time buyers into the market. But unless there is a significant pickup in the number of homes available for sale, the housing recovery could remain sluggish.

Last month, the inventory of unsold homes on the market slipped 0.5 percent from a year ago to 1.87 million. It was the second straight year-on-year decline. According to the Realtors group, supply should be rising by at least 10 percent.

Realtors and economists say insufficient equity and uncertainty about the economy’s strength were forcing potential sellers to stay in their homes. A survey by the NAR showed homeowners on average staying in their homes for 10 years instead of the typical seven years.

At January’s sales pace, it would take 4.7 months to clear houses from the market, down 2.1 percent from a year-ago. A six months’ supply is viewed as a healthy balance between supply and demand.

There is little hope that supply will increase in the near-term. Data last week showed groundbreaking for single-family home projects fell sharply in January. Permits for future single-family home building also declined.

With supply shrinking, the median price for a previously owned home rose 6.2 percent in January from a year ago. The pace, which had been slowing after double-digit growth for much of 2013, appears to be reaccelerating.

Last month, the share of first-time buyers fell to 28 percent, the lowest since last June, from 29 percent in December. It was the second straight month of decline. Economists and real estate agents say a share of 40 percent to 45 percent is required for a strong housing recovery.

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