The National Association of Realtors said on Friday existing home sales rose slightly in December, but missed economist’ expectations amid worries of increased risk.
Economists polled by Reuters had forecast sales rising to a 5.06-million-unit pace, but the NAR said U.S. home resales increased by 2.4 percent to an annual rate of 5.04 million units, just shy of Wall Street’s forecast. Median home prices for 2014 rose to their highest level since 2007, but total sales fell 3.1 percent to 4.93 million from 2013.
That was the first annual drop since 2010, but the NAR added their typical spin to the report.
“Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated,” said NAR chief economist, Lawrence Yun. “Sales were measurably better in the second half – up 8 percent compared to the first six months of the year.”
The housing market has struggled to maintain momentum since stagnating in the second half of 2013. In addition to next-to-nothing or declining wages, a small yet measurable increase in mortgage rates in 2013 fueled a negative reaction in the housing market.
“A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates,” said Yun. “Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.”
NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Arkansas says Realtors® are optimistic the Federal Housing Administration’s plan to reduce annual mortgage insurance premiums will have a positive impact on first-time buyers once it goes into effect on January 26.
“NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for homebuyers,” Polychron said. “Realtors® support responsible lending to qualified borrowers and the move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash.”
But many economists say both the FHA and the NAR are risking another housing bubble by pushing fiscally irresponsible policies that repeat the same mistakes responsible for the mortgage crisis in 2008. A monthly index tracking housing market risk — the composite National Mortgage Risk Index (NMRI) for Agency purchase loans — hit a series high in the month of December.
“With the NMRI hitting a series high, the risks posed by the government’s 85 percent share of the home purchase market are troubling, given that the combined capital of the agencies backing these loans is zero,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk.
Oliner and the Center’s other codirector, Edward Pinto, say the government hasn’t stopped risky lending practices, but rather the FHA has assumed more of the risk exposure. And that exposure is now higher than at any other time since they began tracking the NMRI.
“The need to objectively track mortgage risk is even more important today given the ill-conceived launch of a price war between the government agencies Fannie Mae and FHA,” said Edward Pinto, codirector of AEI’s International Center on Housing Risk. “This war will increase risk levels and fuel home price volatility, particularly in lower-income and minority areas.”
Pinto and Oliner both call the NAR the “housing lobby,” rather than a researcher that provides an objective analysis of the housing market.