Tight supply and rising prices undercut on US home sales

WASHINGTON: US home sales unexpectedly fell in January, leading to the biggest year-on-year decline in more than three years, as a chronic shortage of houses lifted prices and kept first-time buyers out of the market. The supply squeeze and rising mortgage interest rates are stoking fears of a lacklustre spring selling season. The second straight monthly drop in home sales reported by National Association of Realtors on Wednesday added to weak retail sales and industrial production in January in suggesting slower economic growth in the first quarter.
Existing home sales dropped 3.2 per cent to a seasonally adjusted annual rate of 5.38 million units last month, with purchases declining in all four regions. Economists polled by Reuters had forecast home sales rising 0.9 per cent to a rate of 5.60 million units in January.
Existing home sales, which account for about 90 per cent of US home sales, declined 4.8 per cent on a year-on-year basis in January. That was the biggest year-on-year drop since August 2014. The weakness in home sales is largely a function of supply constraints rather than a lack of demand, which is being driven by a robust labour market.
The shortage of properties is concentrated at the lower end of the market. While the number of previously-owned homes on the market rose 4.1 per cent to 1.52 million units in January, housing inventory was down 9.5 per cent from a year ago.
That was also the lowest inventory for January on record. Supply has declined for 32 straight months on a year-on-year basis. At January’s sales pace, it would take 3.4 months to exhaust the current inventory, up from 3.2 months in December.
A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median house price increased 5.8 per cent from a year ago to $240,500 in January, marking the 71st consecutive month of year-on-year price gains.
The PHLX housing index was trading higher, tracking a broadly firmer US stock market. The dollar strengthened against a basket of currencies as yields on shorter-dated US Treasuries rose.
“It looks likely that real residential investment will decline in the first quarter and we see downside risk to our forecast for 2.5 per cent real GDP growth during the quarter,” said Daniel Silver, an economist at JPMorgan in New York.
The economy grew at a 2.6 per cent annualised rate in the fourth quarter. Making housing expensive for some first-time home buyers, the 30-year fixed mortgage rate rose to an average of 4.38 per cent last week, the highest level since April 2014, according to data from mortgage finance agency Freddie Mac. It was up from 4.32 per cent in the prior week. Mortgage rates are increasing in tandem with US government bond yields on worries about rising inflation. — Reuters