Home Sales Post Their Sharpest Drop in Three Years -- 3rd Update
21 February 2018 - 6:30PM
Dow Jones News
By Laura Kusisto and Sarah Chaney
WASHINGTON -- Sales of previously owned U.S. homes in January
experienced their sharpest annual drop in more than three years as
low inventories and rising prices and interest rates took a
toll.
Existing-home sales fell 3.2% in January from the previous month
to a seasonally adjusted annual rate of 5.38 million, the National
Association of Realtors said Wednesday. Economists had expected
sales to improve modestly last month after sales also declined in
December.
Compared with a year earlier, sales in January were down 4.8%,
the steepest annual decline since August 2014.
"Folks are looking at these ... hot markets. Prices are going
up, there are fierce battles and all these homes are going for more
than the asking price," said Alex Villacorta, executive vice
president of HouseCanary, a housing data and analytics startup. "If
you have a home at a really good mortgage rate, you're less
inclined to give that up to get into a market that feels like
2004."
The drop was surprising given that pending home sales increased
slightly over the past two months, which typically predicts an
uptick in existing home sales. David Berson, chief economist at
Nationwide Insurance, said this might partly reflect buyers who
experienced "rate shock" when mortgage rates rose and they were
unable to close.
The average rate nationwide for a 30-year, fixed-rate mortgage
climbed roughly a quarter of a percentage point to 4.22% by the
beginning of February from 3.95% at the beginning of January,
according to mortgage-finance giant Freddie Mac. Rates on Thursday
stood at 4.38%, according to Freddie Mac. Borrowing costs still
remain low by historical standards.
"I still think we will see the job market and demographics
overcome the rise in mortgage rates and give some upward movement
in home sales, but much less than in the past because the number of
homes for sale is so small," Mr. Berson said.
The tax-code overhaul passed in December limited deductibility
of very large mortgages as well as state and local taxes, including
property-tax bills. Mr. Yun said tax reform doesn't appear to be
denting home sales yet, as buying activity remains strong in
expensive regions and prospective buyers expressed limited concern
to their Realtors, according to NAR.
A shortage of available houses on the market has driven up
prices in many regions. There was a 3.4 month-supply of homes on
the market at the end of January, based on the current sales pace.
Total housing inventory declined in January from a year earlier to
1.52 million existing homes for sale, the lowest January count
since 1999 when the agency began tracking the data.
Earlier in the year, strong home sales seemed to be "defying
gravity" given low levels of inventory. "That's clearly been
exhausted now," said Aaron Terrazas, senior economist at
home-listings website Zillow. News Corp, owner of The Wall Street
Journal, also operates Realtor.com under license from the National
Association of Realtors.
Several factors are converging to buttress demand. The national
unemployment rate in January was 4.1%, holding at a 17-year low.
Gauges of household confidence remain elevated.
But limited inventory on the market is driving up home prices at
a rapid pace, potentially blocking some would-be buyers. The median
sale price for an existing home in January was $240,500, up 5.8%
from a year earlier.
In several of the largest metropolitan areas, a household making
a typical salary would have to spend more than 30% of their income
-- a level that economists consider financially sustainable -- to
afford the median home payment, according to HouseCanary.
In some of the fastest-growing and priciest metropolitan areas,
affordability barriers are much steeper. A typical buyer in San
Francisco, for example, would need to spend 75% of household income
to afford a home.
Write to Laura Kusisto at laura.kusisto@wsj.com and Sarah Chaney
at sarah.chaney@wsj.com
(END) Dow Jones Newswires
February 21, 2018 13:15 ET (18:15 GMT)
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