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posted on 21 February 2018

January 2018 Headline Existing Home Growth Again Declines

Written by Steven Hansen

The headline existing home sales growth declined with the authors saying sales "experienced their largest decline on an annual basis in over three years".

Analyst Opinion of Existing Home Sales

The rolling averages have been slowing in 2017, and they marginally decelerated this month. The rolling averages are now marginally in contraction. Housing inventory is now at historical lows for Januarys - and if you do not have enough houses for sale - then that means home sales cannot improve.

Econintersect Analysis

  • Unadjusted sales rate of growth decelerated 0.4 % month-over-month, down 1.9 % year-over-year - sales growth rate trend accelerated using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.2 % month-over-month, up 4.7 % year-over-year - price growth rate trend marginally accelerated using the 3 month moving average.
  • The homes for sale unadjusted inventory improved this month compared to last month, but remains historically low for Januarys, and is down 9.5 % from inventory levels one year ago).

NAR reported:

  • Sales down 3.2 % month-over-month, down 4.8 % year-over-year.
  • Prices up 5.8 % year-over-year
  • The market expected annualized sales volumes of 5.530 M to 5.730 M (consensus 5.650 million) vs the 5.38 million reported.

The graph below presents unadjusted home sales volumes.

Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says January's retreat in closings highlights the housing market's glaring inventory shortage to start 2018. The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month," he said. "While the good news is that Realtors® in most areas are saying buyer traffic is even stronger than the beginning of last year2, sales failed to follow course and far lagged last January's pace. It's very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.

Another month of solid price gains underlines this ongoing trend of strong demand and weak supply. The underproduction of single-family homes over the last decade has played a predominant role in the current inventory crisis that is weighing on affordability," said Yun. "However, there's hope that the tide is finally turning. There was a nice jump in new home construction in January and homebuilder confidence is high. These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses."

"The gradual uptick in wages over the last few months is a promising development for the housing market, but there's risk these income gains could be offset by the recent jump in mortgage rates," said Yun. "That is why the pace of added new and existing supply in the months ahead is worth monitoring. If inventory conditions can improve enough to cool the swift price growth in several markets, most prospective buyers should be able to absorb the higher borrowing costs."

NAR President Elizabeth Mendenhall, a sixth-generation Realtor® from Columbia, Missouri and CEO of RE/MAX Boone Realty, says Realtors® in several markets are reporting that the spring buying season appears to be starting early this year. "Those planning to buy a home this spring should look into getting pre-approved for a mortgage now and start having those serious conversations with their real estate agent on what they're looking for in a home and where they want to buy," she said. "With demand exceeding supply in most areas, competition will only heat up in the months ahead. Beginning the home search now could lead to a successful and less stressful buying experience."

To remove the seasonality in home prices, here is a year-over-year graph which demonstrates a general improvement in home price rate of growth since mid-2012.

Econintersect does a more complete analysis of home prices with the Case-Shiller analysis.

The home price situation according to the NAR:

The median existing-home price for all housing types in January was $240,500, up 5.8 percent from January 2017 ($227,300). January's price increase marks the 71ststraight month of year-over-year gains.

According to the NAR;

First-time buyers were 29 percent of sales in January, which is down from 32 percent in December 2017 and 33 percent a year ago. NAR's 2017 Profile of Home Buyers and Sellers - released in late 2017 - revealed that the annual share of first-time buyers was 34 percent.

All-cash sales were 22 percent of transactions in January, which is up from 20 percent in December 2017 but down from 23 percent a year ago. Individual investors, who account for many cash sales, purchased 17 percent of homes in January, up from 16 percent both last month and a year ago.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory4 at the end of January rose 4.1 percent to 1.52 million existing homes available for sale, but is still 9.5 percent lower than a year ago (1.68 million) and has fallen year-over-year for 32 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.6 months a year ago).

Caveats on Use of NAR Existing Home Sales Data

The National Association of Realtors (NAR) is a trade organization. Their analysis tends to understate the bad, and overstate the good. However, the raw (and unadjusted) data is released which allows a complete unbiased analysis. Econintersect analyzes using the raw data. Also note the National Association of Realtors (NAR) new methodology now has moderate back revision to the data - so it is best to look at trends, and not get too excited about each month's release.

Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).



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