Sales of existing homes slump to lowest since July 2012

SALES OF EXISTING homes dropped 5.1 percent in January, reflecting the impact of harsh weather and declining affordability, the National Association of Realtors said Friday. / BLOOMBERG FILE PHOTO/TY WRIGHT
SALES OF EXISTING homes dropped 5.1 percent in January, reflecting the impact of harsh weather and declining affordability, the National Association of Realtors said Friday. / BLOOMBERG FILE PHOTO/TY WRIGHT

WASHINGTON – Sales of previously owned U.S. homes dropped in January to the lowest level in more than a year as harsh winter weather combined with a lack of supply, tight credit and declining affordability slowed demand.

Purchases decreased 5.1 percent to a 4.62 million annual rate last month, the fewest since July 2012, figures from the National Association of Realtors showed Friday in Washington. The median forecast of 79 economists surveyed by Bloomberg projected sales would drop to a 4.67 million rate. Sales fell in all four regions of the country.

The figures reflect closings on contracts signed months earlier and highlight how higher borrowing costs and property prices have slowed momentum in residential real estate. More progress in the labor market that generates stronger wage growth would help reinvigorate demand.

“It’s likely the weather played some role, but just as much of a role was played by lower inventories, higher mortgage rates, slightly higher prices and tighter credit,” said Robert Rosener, an economist at Credit Agricole CIB in New York, who correctly projected the drop in sales. “We’re on a positive trajectory, and when the spring comes we should see a bounce back.”

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Stocks held earlier gains after the report. The Standard & Poor’s 500 Index climbed 0.1 percent to 1,841.09 at 10:30 a.m. in New York as Hewlett-Packard Co. and Priceline.com Inc. results topped estimates.

Survey results

Estimates in the Bloomberg survey of economists ranged from a sales pace of 4.5 million to 4.9 million. December’s figure was unrevised at a 4.87 million pace.

Compared with a year earlier, purchases decreased 5.1 percent in January on an adjusted basis, Friday’s report showed.

The median price of an existing home increased 10.7 percent from a year earlier to $188,900 in January.

With Friday’s report, the NAR issued its annual revisions affecting data over the past three years. Sales totaled 5.09 million in 2013, the same as previously estimated.

The poor weather wasn’t completely to blame for the drop in activity, Lawrence Yun, NAR chief economist, said in a news conference on Friday as the figures were released. “Lack of inventory is clearly one of the factors. Buyers want to see more choices.”

Regional breakdown

The existing home-sales decline was led by a 7.3 percent drop in the West, followed by a 7.1 percent decrease in the Midwest.

First-time buyers accounted for 26 percent of all purchases in January, the lowest since record keeping began in October 2008.

The number of existing properties on the market rose 7.3 percent from a year earlier to 1.9 million in January. At the current pace, it would take 4.9 months to sell those houses compared with 4.6 months at the end of December.

The median time a home was on the market was 67 days in January compared with 72 days the same month last year.

The data suggests that the worst of the inventory drought is over as long as housing starts increase, Yun said during the press conference. The figures also show some divergence in the market as sales of lower-priced homes are dropping, mainly because of a lack of supply, while demand for higher-priced properties is climbing, reflecting the rebound in wealth caused by rising stock prices.

Market diverging

The split is also evident in the composition of properties sold, he said. Purchases of single-family homes decreased 5.8 percent to an annual rate of 4.05 million, the report showed. The sales pace of multifamily properties including condominiums was little changed at 570,000.

Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008, three years after a record 7.08 million homes were sold.

Inclement weather in the eastern U.S. risks further restraining the housing market. Last month was the coldest January since 1994 in the contiguous U.S., based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Md. The Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said.

Construction slumps

Builders have felt the sting of colder conditions. The pace of home construction fell 16 percent to an 880,000 annualized rate last month, the biggest decrease since February 2011, Commerce Department data showed last week.

Builder confidence also slumped as the weather slowed both potential buyer traffic and sales. The National Association of Home Builders/Wells Fargo sentiment gauge slumped to 46 this month from 56 in January, the biggest decline since monthly record-keeping began in 1985. Readings less than 50 mean more respondents reported poor market conditions than good.

Beyond weather, purchasing a home has become less affordable. The 30-year fixed mortgage rate averaged 4.33 in the week ended Feb. 20, up from 3.56 percent around the same time a year ago. After reaching a four-month low of 4.10 percent at the end of October, the average rate rose to 4.53 percent at the start of this year.

“If you recall back a couple quarters ago, there was a pretty adverse reaction to the increase in mortgage rates, even though they were slight and they’re still historically low by anybody’s standards,” Donald Tomnitz, CEO of DR Horton Inc., said on a Jan. 28 conference call. As spring approaches, rates “will be less and less a factor.”

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