Existing-home sales fall in January, but signs point to a strong spring market

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Sales of previously owned homes, also known as existing homes, fell in January. While this may sound discouraging, recent data showing a decline in home prices and mortgage rates could point to a pickup this spring.

Existing-home sales dropped 1.2% in January from the prior month to a seasonally adjusted annual rate of 4.94 million, according to the most recent data from the National Association of Realtors (NAR). That undershot economists’ expectations for an increase to 5.02 million. December’s sales were revised higher to a 5.0 million rate, according to Realtor.com.

January marked the third consecutive month of declining sales for existing homes. Furthermore, January’s 4.94 million home sales were the lowest since November 2015. When compared to the 2018 figure, January existing home sales are 8.5% lower.

Are Homes Becoming More Affordable?

Lawrence Yun, the association’s chief economist, said January’s lackluster sales figures were likely to mark a cyclical low, due to moderating home prices and gains in household income. In short, homes may be more affordable soon–good news for 2019 home buyers.

“The continued slowdown in price growth coupled with higher household income is making homes more affordable to more people,” said Robert Frick, an economist at Navy Federal Credit Union. If mortgages rates stay lower, “many of last year’s discouraged home shoppers could see enough opportunity to make them home buyers this year,” he added.

Inventories of existing homes for sale increased 3.9% to 1.59 million in January. At 3.9 months’ worth of supply, inventories were up slightly from 3.7 months in December, NAR stated.

Home Prices

The national median sale price for a previously owned home last month was $247,500, up 2.8% from a year earlier, marking the 83rd straight month of year-over-year gains. Still, the 2.8% rise was the slowest year-over-year increase since February 2012. The median price in January was also down slightly from $254,700 in December.

More Data to Come

Some housing data came in later than usual, due to the partial government shutdown. The Commerce Department’s report on housing starts in December will be released Feb. 26, more than a month later than previously scheduled.

“With the official data over a month behind and the government shutdown potentially distorting the early-2019 data, we are at least two full months away from getting a meaningful reading on the housing market,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients.

Still, NAR says the January data indicates that the housing market started the first quarter on a weak footing.

“Last year was the weakest for home sales since 2015. Buyers pulled back in the latter half of 2018, as rising mortgage rates, high home prices, a volatile stock market, concerns that prices would start declining and anxiety about the national political situation all caused a number of buyers to hit pause,” wrote Harriet Torry, for Realtor.com.

The Trump administration’s 2017 tax law may have also had an impact on incentives for homeownership, especially in costlier, high-tax areas. The law reduced the cap for the deductibility of mortgage interest and limited the amount of state and local taxes that can be deducted.

A gauge of U.S. home-builder confidence increased in February for the second consecutive month. The National Association of Home Builders on Tuesday said its index of builder confidence in the market for new single-family homes rose to 62 in February from 58 in January.

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