The U.S. housing market continues to send mixed signals. For example, existing home sales in America fell by 6.4 percent in December to a seasonally adjusted annual rate of 4.99 million units, according to the National Association of Realtors (NAR). That was the first monthly decrease since September, the largest decline in three years, and significantly worse than expected. One factor behind the weakness in home sales is an uptick in inventory (supply) that has enabled buyers to take a longer time to select from a growing number of options. Moreover, properties typically stayed on the market for 46 days in December, up from 42 days in November and 40 days a year earlier. Thirty-nine percent of the homes sold in December, though, were on the market for less than a month, signaling an environment that is still favorable for sellers.
Another thing to consider is that this metric of existing home sales looks at completed transactions, meaning that a lot of the contracts that closed in December probably signed in November when mortgage rates hit a nearly 8-year high. Since then borrowing costs have retreated to 9-month lows, which will not only help affordability but also potentially motivate some would-be buyers to act now before rates move back up. Homebuilder optimism improved as well following the latest pullback in mortgage rates, but forward-looking data on building permits have yet to be released due to the partial government shutdown. The Census Bureau’s new home sales report, one of the best leading economic indicators, will also be delayed (for the second month in a row) due to the ongoing stalemate in Washington. NAR president John Smaby added that “The partial shutdown of the federal government has not had a significant effect on December closings, but the uncertainty of a shutdown has the potential to harm the market. Once the government is fully reopened, I am hopeful that housing transactions will increase.”
Sources: Econoday, NAR, NAHB, ZH, Twitter, FRBSL
Post author: Charles Couch