Existing Home Sales Hit Decade High As Prices Jump More Than 7%

So much for concerns that rising rates would slam the US real estate market.

According to the NAR, in January, Existing home sales jumped by 3.3%, well above the 1.1% consensus estimate, and more than reversing last month"s revised -1.6% drop. The annuallized pace of sales rose to 5.69 million, above the 5.54 million estimate, and the biggest monthly jump since March 2016. January"s sales pace was 3.8% higher than a year ago (5.48 million) and surpasses November 2016 (5.60 million) as the strongest since February 2007 (5.79 million).

Praising the rebound in housing transactions, NAR"s chief economist Larry Yun said January"s sales gain signals resilience among consumers even in a rising interest rate environment. "Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home," he said. "Market challenges remain, but the housing market is off to a prosperous start as homebuyers staved off inventory levels that are far from adequate and deteriorating affordability conditions."

And yet, there remains a glaring disconnect between the housing transactions, and mortgage applications, which as shown in the chart below, have tumbled in recent weeks far below prior years, as a result of rising rates.

The west led housing transaction, with only the midwest posting a 1.5% decline:

• January existing-home sales in the Northeast jumped 5.3 percent to an annual rate of 800,000, and are now 6.7 percent above a year ago. The median price in the Northeast was $253,800, which is 2.5 percent above January 2016.


• In the Midwest, existing-home sales decreased 1.5 percent to an annual rate of 1.29 million in January, and are 0.8 percent below a year ago. The median price in the Midwest was $174,900, up 6.5 percent from a year ago.


• Existing-home sales in the South in January rose 3.6 percent to an annual rate of 2.31 million, and are now 3.1 percent above January 2016. The median price in the South was $201,400, up 9.2 percent from a year ago.


• Existing-home sales in the West ascended 6.6 percent to an annual rate of 1.29 million in January, and are now 8.4 percent above a year ago. The median price in the West was $332,300, up 6.8 percent from January 2016.

The median existing-home price was $228,900, up 7.1% from January 2016 ($213,700). January"s price increase was the fastest since last January (8.1%) and marks the 59th consecutive month of year-over-year gains.

Total housing inventory at the end of January rose 2.4 percent to 1.69 million existing homes available for sale, but was still 7.1% lower than a year ago (1.82 million) and has fallen year-over-year for 20 straight months. Unsold inventory is at a 3.6-month supply at the current sales pace (unchanged from December 2016). Properties typically stayed on the market for 50 days in January, down from 52 days in December and considerably more a year ago (64 days). Short sales were on the market the longest at a median of 108 days in January, while foreclosures sold in 51 days and non-distressed homes took 49 days. Thirty-eight percent of homes sold in January were on the market for less than a month.

Metro areas where listings stayed on the market the shortest amount of time in January were San Jose-Sunnyvale-Santa Clara, Calif., 43 days; San Francisco-Oakland-Hayward, Calif., 47 days; San Diego-Carlsbad, Calif., 55 days; Seattle-Tacoma-Bellevue, Wash., 57 days; and Nashville-Davidson-Murfreesboro-Franklin, Tenn., Vallejo-Fairfield, Calif., and Greeley, Colo., all at 58 days.

Looking at the composition of buyers, first-time buyers were 33% of sales in January, which is up from 32% both in December and a year ago. NAR"s 2016 Profile of Home Buyers and Sellers revealed that the annual share of first-time buyers was 35% . According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage decreased slightly in January to 4.15 percent from 4.20 percent in December. The average commitment rate for all of 2016 was 3.65 percent.

Meanwhile, all cash sales continued to rise, and represented 23% of transactions in January, up from 21% in December but down from 26% a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in January, unchanged from December and down from 17 percent a year ago. Fifty-nine percent of investors paid in cash in January.  

For now it remains unclear whether the recent spike in transactions will persist once consumer confidence fades away even as higher mortgage rates remain.  A further challenge to existing homes: the gradual disappearance of Chinese and other foreign buyers, which as discussed before, has had a substantial impact on ultra high end housing.

December Existing Home Sales Plunge Most Since 2009, NAR Blames Rate "Surge" & Record Low Inventory

With spiking mortgage rates, and tumbling mortgage applications, it is hardly surprising that existing home sales tumbled in December but the 2.8% plunge is the biggest since July and is the worst decline for December since 2009.

Larry Yun, NAR chief economist, said that while the housing market had its best year since the Great Recession, it ended on a softer note: "Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market," he said. "However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December." He added that "while a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end."
 

However, worse is yet to come since these closings come from before rates really exploded.

The median existing-home price for all housing types in December was $232,200, up 4.0 percent from December 2015 ($223,200). December"s price increase marks the 58th consecutive month of year-over-year gains.   

Lawrence Yun"s dour warnings about the future of the housing market in light of surging rates continued when he said that "Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction," said Yun.

"Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production."

Yun was also quick to blame the lack of sales on a record low inventory:

Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015).

"Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it"s not getting any easier to be a first-time buyer," said Yun. "It"ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market."

But ultimately it is a question of deteriorating affordability:

"Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction," said Yun. "Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production."

It"s even worse for first time home buyers: ""Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it"s not getting any easier to be a first-time buyer," said Yun. "It"ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market."

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Needless to say, the NAR was unhappy with Trump"s reversal of the FHA mortgage insurance fee. NAR President William E. Brown, said that by cutting annual premiums from 0.85 percent to 0.60 percent, an FHA-insured mortgage becomes a more viable and affordable option for these buyers.

"Without the premium reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face higher costs and between 30,000 and 40,000 would-be buyers will be prevented from entering the market," he said.

Properties typically stayed on the market for 52 days in December, up from 43 days in November but down from a year ago (58 days). Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven percent of homes sold in December were on the market for less than a month.

Somre more details:

• All-cash sales were 21 percent of transactions in December, unchanged from November and down from 24 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in December, up from 12 percent in November and unchanged from a year ago. Fifty-nine percent of investors paid in cash in December.


• Distressed sales  — foreclosures and short sales — rose to 7 percent in December, up from 6 percent in November but down from 8 percent a year ago. Five percent of December sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in December (17 percent in November), while short sales were discounted 10 percent (16 percent in November).


• Single-family home sales declined 1.8 percent to a seasonally adjusted annual rate of 4.88 million in December from 4.97 million in November, but are still 1.5 percent above the 4.81 million pace a year ago. The median existing single-family home price was $233,500 in December, up 3.8 percent from December 2015.


• Existing condominium and co-op sales dropped 10.3 percent to a seasonally adjusted annual rate of 610,000 units in December, and are now 4.7 percent below a year ago. The median existing condo price was $221,600 in December, which is 5.5 percent above a year ago.

Finally, the regional breadkwon was as follows:

• Sales In the Northeast slid 6.2 percent to an annual rate of 760,000, but are still 2.7 percent above a year ago. The median price in the Northeast was $245,900, which is 3.8 percent below December 2015.


• In the Midwest, existing-home sales decreased 3.8 percent to an annual rate of 1.28 million in December, but are still 2.4 percent above a year ago. The median price in the Midwest was $178,400, up 4.6 percent from a year ago.


• Sales In the South in December were at an annual rate of 2.25 million (unchanged from November), and are 0.4 percent above December 2015. The median price in the South was $207,600, up 6.5 percent from a year ago.


• Sales In the West fell 4.8 percent to an annual rate of 1.20 million in December, and are now 1.6 percent below a year ago. The median price in the West was $341,000, up 6.0 percent from December 2015.