Implications: Existing home sales fell 5.1% in January to the slowest pace in eighteen months. However, the consensus (and First Trust) expected a large drop so today's report should not change anyone's impression about the economy. Existing home sales are counted at closing, and our unusually harsh winter started back in December, when pending home sales (contracts on existing homes) plummeted 8.7%. Given even harsher weather in January, when prospective buyers would have been placing contracts on homes, closings are probably taking another dive in February. Besides the weather, another reason for slower sales is a lack of inventory, which could lead some buyers to purchase a new home instead. There are only 1.9 million units in inventory right now, which is relatively low given the size of our population and the total number of homes. We expect more inventories to come onto the market in 2014 as home prices continue to move higher (median prices for existing homes are up 10.7% from a year ago). Also, credit remains tight, making it hard to get a loan to buy a home. However, we do not believe higher mortgage rates are noticeably holding back sales. The US had a bubble in housing during 2003-07, when 30-year mortgage rates averaged 6.1%. Today they are 4.4%. Adjusted for inflation, real mortgage rates are actually a little bit lower today than they were back in 2003-2007. We remain convinced that the underlying trend for housing remains strong. Also, remember, existing home sales contribute almost zero to GDP, so there will be no noticeable negative effect to GDP from the temporary slowdown in sales.
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Posted on Friday, February 21, 2014 @ 11:13 AM
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