Still No Traction

The wait for an up trend in existing home sales continues.

Despite a year of strong job growth and low mortgage rates, sales of existing homes continue to languish. Indeed, sales fell a steep 4.9% to 4.82 million units on an annualized rate for January. The drop in sales made for a sizable rise in inventory relative to sales, to 4.7 months versus 4.4 months in December.

At the same time, the median price of an existing home dropped 4.1% to $199,600. This is the first reading below $200,000 since March 2014. Oddly, if not disconcertingly, price concessions haven't helped lift sales. Given the uptick in inventory, we would not be surprised to see more discounting in February's report. Generally, that would be a positive for sales, but we will see.

Because it is taking so long for existing home sales to gain traction, we have to wonder if there is a fundamental shift occurring. The NAR reports that homeowners are remaining in their homes 10 years on average these days. This is three years more than the long-term average of seven years. Are homeowners more nervous? Are they more interested in rehabbing than moving? Is job mobility an issue? Perhaps all the above; all we know is that more people are staying put.

Then again, it's also possible a stronger foundation is forming. If total existing home sales are moving sideways due to fewer distressed sales, that's obviously a good thing. This suggests that declining distressed sales are being offset by more conventional equity-driven sales. In other words, the composition of sales is improving.

Though the overall sales market is much smaller, new home sales are at least trending higher. Sales of new homes came in at a better-than-expected 481,000 units on an annualized rate in January. Unlike with existing home sales, discounting appears to have helped new home sales. The median price for a new home dipped 2.6% to $294,000 in January. If we go back to January 2012, we see a healthy long-term trend line that moves up linearly left to right.

Of course, we are always quick to note that all housing markets are local markets. What occurs at the national level might or might not reflect what occurs locally. Mortgage markets, on the other hand, are much more consistent across the country. Mortgage rates in Boston aren't much different than rates in Los Angeles.

Rates across the country have risen in recent weeks. Despite the rise, purchase mortgage activity has come to life. The Mortgage Bankers Association reports that its purchase index ended six weeks of declines with a 5.0% rise in the February 20 week. We are hopeful for further gains, but we've learned from experience not to hold our breath.

One week doesn't make a trend, but if price growth continues to moderate and mortgage rates remain low (which we believe they will), we still think we will see a resurgence in lending and in home sales that we predicted at the beginning of the year.

Information provided by Jessica Regan.

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