 | Existing Home Sales Rose 2.4% in December |
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| Posted Under: Data Watch • Home Sales • Housing |
Implications: Sales of existing homes are trending up, but nowhere close to booming. Sales rose 2.4% in December and are up only a modest 3.5% from a year ago. However, the underlying fundamentals are improving. Distressed homes (foreclosures and short sales) now account for only 11% of sales, down from over 30% in the recent past, while all-cash buyers are down to 26% of sales from a high of 35% in February 2014. As a result, non-cash sales (where the buyer uses a mortgage loan) have jumped to 74% of the total and have been rising. In other words, even though credit (but, not liquidity) remains relatively tight, we see evidence of a thaw, which suggests overall sales will climb at a faster pace in the year ahead. What's interesting is that the percentage of buyers using credit has increased as the Fed tapered. Those predicting a housing crash from tapering were completely wrong. Probably the biggest reason for the tepid recovery in existing home sales so far is a lack of inventory. Inventories are down 0.5% from a year ago and at the lowest level in almost two years. In the year ahead, we expect the higher level of home prices to bring more sellers into the market, which should help generate additional sales. Either way, whether existing home sales are up or down, it's important to remember these data, by themselves, should not change anyone's impression about the overall economy. Existing home sales contribute almost zero to GDP, which counts "new" production, not re-sales of old property. Also, on the housing front, the FHFA index, which measures prices for homes financed with conforming mortgages, was up 0.8% in November, the largest increase in 18 months. In the past year, the FHFA index is up 5.3% versus a gain of 7.4% in the year ending in November 2013. We expect further gains in home prices in 2015, although at a slower pace than in recent years. In other recent news, new claims for unemployment benefits declined 10,000 last week to 307,000. Continuing claims increased 19,000 to 2.44 million. Plugging these figures into our models suggests nonfarm payrolls will be up 231,000 in January. That would bring the total gain for the past twelve months to more than 3 million, the first time that's happened for any 12-month period since 1999.
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