Inventory Shortage Taking Toll on U.S. Existing-Home Sales
Real Estate In-Depth | February 2018
WASHINGTON—The National Association of Realtors reported on Feb. 21 that existing-home sales slumped for the second consecutive month in January and experienced their largest decline on an annual basis in more than three years.
All major regions saw monthly and annual sales declines last month, NAR stated.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, sank 3.2% in January to a seasonally adjusted annual rate of 5.38 million from a downwardly revised 5.56 million in December 2017. After last month’s decline, sales are 4.8% below a year ago (largest annual decline since August 2014 at 5.5%) and at their slowest pace since last September (5.37 million).
Lawrence Yun, NAR chief economist, says January’s retreat in closings highlights the housing market’s glaring inventory shortage to start 2018. “The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said. “While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace. It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”
The median existing-home price for all housing types in January was $240,500, up 5.8% from January 2017 ($227,300). January’s price increase marks the 71st straight month of year-over-year gains.
Total housing inventory at the end of January rose 4.1% to 1.52 million existing homes available for sale, but was still 9.5% lower than a year ago (1.68 million) and has fallen year-over-year for 32 consecutive months. Unsold inventory was at a 3.4-month supply at the current sales pace (3.6 months a year ago).
“Another month of solid price gains underlines this ongoing trend of strong demand and weak supply. The underproduction of single-family homes over the last decade has played a predominant role in the current inventory crisis that is weighing on affordability,” Yun says. “However, there’s hope that the tide is finally turning. There was a nice jump in new home construction in January and homebuilder confidence is high. These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses.”
First-time buyers were 29% of sales in January, which was down from 32% in December 2017 and 33% a year ago. NAR’s 2017 Profile of Home Buyers and Sellers—released in late 2017—revealed that the annual share of first-time buyers was 34%.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage moved higher for the fourth straight month to 4.03% in January from 3.95% in December. The average commitment rate for all of 2017 was 3.99%.
“The gradual uptick in wages over the last few months is a promising development for the housing market, but there’s risk these income gains could be offset by the recent jump in mortgage rates,” said Yun. “That is why the pace of added new and existing supply in the months ahead is worth monitoring. If inventory conditions can improve enough to cool the swift price growth in several markets, most prospective buyers should be able to absorb the higher borrowing costs.”
Properties typically stayed on the market for 42 days in January, which was up from 40 days in December 2017 but down from a year ago (50 days). Forty-three percent of homes sold in January were on the market for less than a month.
Realtor.com’s Market Hotness Index, measuring time-on-the-market data and listings views per property, revealed that the hottest metro areas in January were San Francisco-Oakland-Hayward, CA.; San Jose-Sunnyvale-Santa Clara, CA.; Vallejo-Fairfield, CA; Midland, TX; and Colorado Springs, CO.
NAR President Elizabeth Mendenhall, a sixth-generation Realtor from Columbia, MO and CEO of RE/MAX Boone Realty, says Realtors in several markets are reporting that the spring buying season appears to be starting early this year. “Those planning to buy a home this spring should look into getting pre-approved for a mortgage now and start having those serious conversations with their real estate agent on what they’re looking for in a home and where they want to buy,” she said. “With demand exceeding supply in most areas, competition will only heat up in the months ahead. Beginning the home search now could lead to a successful and less stressful buying experience.”
All-cash sales were 22% of transactions in January, which was up from 20% in December 2017, but down from 23% a year ago. Individual investors, who account for many cash sales, purchased 17% of homes in January, up from 16% both last month and a year ago.
Distressed sales—foreclosures and short sales—were 5% of sales in January, unchanged from December 2017 and down from 7% a year ago. Four percent of January sales were foreclosures and 1% were short sales.
Single-family and Condo/Co-op Sales
Single-family home sales declined 3.8% to a seasonally adjusted annual rate of 4.76 million in January from 4.95 million in December, and were 4.8% below the 5.00 million pace a year ago. The median existing single-family home price was $241,700 in January, up 5.7% from January 2017.
Existing condominium and co-op sales rose 1.6% to a seasonally adjusted annual rate of 620,000 units in January, but were still 4.6% below a year ago. The median existing condo price was $231,600 in January, which was 7.1% above a year ago.
January existing-home sales in the Northeast declined 1.4% to an annual rate of 730,000, and were 7.6% below a year ago. The median price in the Northeast was $269,100, which was 6.8% above January 2017.
In the Midwest, existing-home sales dipped 6.0% to an annual rate of 1.25 million in January, and were 3.8% below a year ago. The median price in the Midwest was $188,000, up 8.7% from a year ago.
Existing-home sales in the South decreased 1.3% to an annual rate of 2.26 million in January, and were 1.7% lower than a year ago. The median price in the South was $208,200, up 4.3% from a year ago.
Existing-home sales in the West fell 5.0% to an annual rate of 1.14 million in January, and were 9.5% below a year ago. The median price in the West was $362,600, up 8.8% from January 2017.