February 21, 2018 11:45 AM, EST

Sales of Existing Homes Unexpectedly Fell in January

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Sales of previously owned U.S. homes unexpectedly fell in January to a four-month low, indicating a shortage of available properties is increasingly hindering the real-estate industry, a National Association of Realtors report showed Feb. 21.

Highlights of January Existing-Home Sales

• Contract closings fell 3.2% month over month to 5.38 million annual rate (estimated 5.6 million) from 5.56 million; below all estimates in Bloomberg survey.

• Median sales price increased 5.8% year over year to $240,500.

• Inventory of available properties fell 9.5% year over year to 1.52 million, lowest for January since records began in 1999.

Key Takeaways

Sales growth is limited by an acute shortage of inventory, which is pushing up home prices faster than wage growth. The group noted that property prices have jumped 41% over the past five years, while wages have gained 12%.

If the current pace of sales continues — which NAR doesn’t anticipate — purchases would be lower than in 2017. At the same time, steady hiring and elevated confidence to make large purchases, as well as tax cuts that are boosting Americans’ take-home pay, are expected to sustain demand for housing in much of the nation.

Borrowing costs have risen since the start of the year, also crimping affordability, with the rate on a fixed 30-year mortgage advancing last week to the highest in almost four years. While the tax legislation also limits the deduction for mortgage interest on more expensive homes, signaling demand may cool in areas of the country where the cost of a house is well above the national median, the Realtors group said there’s little evidence yet that it’s having an impact.

Official’s View

“It’s the inventory situation that pops out” as the main culprit for the slowdown, Lawrence Yun, NAR’s chief economist, said at a press briefing accompanying the report. “The interest is there, but they just cannot close the deal because of the lack of inventory.”

First-time buyers are “struggling to get in,” Yun said. “There’s no letup in home prices.”

What Bloomberg Economists Say

January’s drop in existing home sales seems to be a payback for the strength evident early in the fourth quarter, when demand had likely been artificially boosted by expectations among buyers for reduced mortgage deductions at the start of 2018. Nevertheless, Bloomberg Economics estimates housing demand will likely continue to increase throughout the year, despite the recent jump in mortgage costs. The economy is on much better footing today than it was back in 2013 — when the taper tantrum pushed mortgage rates higher and sales lower: Economic momentum has accelerated, consumer sentiment is hovering around cyclical highs and wages are gradually rising.

— Yelena Shulyatyeva and Carl Riccadonna, Bloomberg Economics

Other Details

• Purchases fell in all four regions, led by a 6% decline in the Midwest; sales dropped 5% in the West and 1.3% in the South.

• At the current pace, it would take 3.4 months to sell the homes on the market, compared with 3.2 months in December and 3.6 months in January 2017; Realtors group considers a normal market at six to seven months’ supply.

• Single-family home sales fell 3.8% to annual rate of 4.76 million, lowest since July 2016.

• Purchases of condominium and co-op units rose 1.6% to 620,000 pace.

• First-time buyers made up 29% of all sales, compared with 33% a year earlier.

• Homes typically sold in 42 days, down from 50 days a year earlier.

• 43% of homes sold in January were on market for less than a month.

• Existing home sales account for 90% of the market and are calculated when a contract closes. New home sales, considered a timelier indicator though their share is only about 10%, are tabulated when contracts get signed.

With assistance by Chris Middleton