Existing home sales fell sharply in January, dropping to their lowest level in nine months in part due to an alleged shortage of properties on the market. The report is a clear reality check to those who had expectations for an improving housing market in 2015.
The National Association of Realtors said on Monday existing home sales declined 4.9 percent to an annual rate of 4.82 million units, the lowest level since April of last year.
“January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” said Lawrence Yun, the NAR chief economist. “Realtors are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”
December’s sales pace was revised up to 5.07 million units from a previously reported 5.04 million units. Revisions to sales data going back to 2012 were minor. Sales slumped last month despite a decline in mortgage rates, which saw the 30-year rate hitting a 20-month low. Existing-home sales fell in every region. In the West sales fell 7.1 percent to an annual rate of 1.04 million; 4.6 percent to an annual rate of 2.07 million in the South; 2.7 percent to an annual level of 1.08 million in the Midwest; and, 6.0 percent to an annual rate of 630,000 in the Northeast.
“Although sales cooled in January, home prices continued solid year-over-year growth,” adds Yun. “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.”
Inventory levels are hurting sales by limiting the selection of houses available to potential buyers and also keeping house prices higher than consumers can afford. Total housing inventory at the end of January increased 0.5 percent to 1.87 million existing homes available for sale, but still remains 0.5 percent lower than a year ago (1.88 million). Unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December.
Economists polled by Reuters had forecast existing home sales falling only to a 4.97-million unit pace last month. Sales were up 3.2 percent from a year ago. Yet, while economists say a lack of equity and uncertainty about the economy’s true strength are forcing potential sellers to stay in their homes, the housing lobby is calling for more government intervention in the market via the Federal Housing Administration.
“Condominiums offer an affordable option and are the first step to homeownership for many homebuyers,” said President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Arkansas. “NAR has urged the FHA to develop policies that will give buyers access to more flexible and affordable financing opportunities and a wider choice of approved condo developments.”
But a further loosening of restrictions will also serve to further increase risk in a market already artificially propped up by government intervention. The riskiness of mortgage loan originations in the U.S. housing market rose in January, marking the fifth straight month of risk increases. AEI’s composite National Mortgage Risk Index (NMRI) for Agency purchase loans hit a new series high of 11.94 percent in January, up 0.4 percent from the prior 3-month average and 0.8 percent year-over-year.
“With the NMRI once again hitting a series high, the risks posed by the government’s 85% percent share of the home purchase market continue to rise,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk.
The composites subindexes gauging risk for Fannie Mae, the FHA, and the Veterans Administration (VA) all hit new series highs in January, as well.
“Policy makers need to be mindful of the upward risk trends that are occurring with respect to both first-time and repeat buyers,” said Edward Pinto, codirector of AEI’s International Center on Housing Risk. “Recent policy moves by the FHA and FHFA will likely exacerbate this trend.”