Chalk it up to the January Effect

Our mood may have been a little too dour to start the New Year.  Maybe it's the time of year. January is something of a down month: The December holidays and all the festivities they engender are behind us. The days are short and there is really nothing to look forward to. Negative news, which there has been a surfeit of lately, tends to get amplified.

January is finally winding down, and the latest data releases are winding up – positively. Home sales, which we've been down on lately, have reemerged with a vengeance.

Existing home sales unexpectedly soared, increasing 14.7% to 5.46 million on an annualized rate, in December. The surge was strong enough to turn a negative into a positive. Total sales for 2015 posted at 5.26 million, 6.5% higher than the 4.94 million posted in 2014. But if December sales would have held at November's pace, sales for the year would have finished down.

That said, existing home sales still face near-term headwinds: Low supply continues to plague the market, as it has for the past two years. Total homes for sale fell to 1.79 million in December from November's 2.04 million. Supply relative to sales dropped to only 3.9 months. Supply is as low as it has been in nearly 11 years. It might be tough for sales to hold December levels as we head into spring.

Fourteen and seven must be the magic numbers for December. Existing home sales rose 14.7%, and so did new home sales. Specifically, new home sales increased 14.7% for 2015. There were 501,000 new homes sold last year compared to 437,000 in 2014. As for monthly numbers, we see new home sales were up 10.8% to 544,000 on an annualized rate in December compared to November.

As with existing home sales, supply could limit future new home sales. Supply did rise by 6,000 in December to 237,000, but supply relative to sales fell back to 5.2 months from 5.6 months.

Pricing could also be a limiting factor to sales growth. Prices continue to plow ahead in most major markets. Case-Shiller's 20-city index rose 0.9% in November.  All 20 cities Case-Shiller follows reported monthly gains. Year over year, Case-Shiller's index shows prices up 5.8%.

Of course, all markets are local markets, and a few local markets can skew the national average. Portland home prices are up 11.1% year over year, followed by San Francisco at 11% and Denver at 10.9%. Washington DC, at 2.1%, Chicago, at 2.0%, bring up the rear, but these rates of price appreciation are closer to historical norms. Therefore, they're more sustainable.

One month's worth of sales data doesn't make a trend, but it's a start. The uptick in purchase applications, which increased 5% last week, does lift our spirits and gives us good reason to anticipate the spring selling season.

 Information provided by Jessica Regan.

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