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Inventory and Affordability Taking a Toll on Home Sales

home-for-sale-sign-three-BHExisting-home sales dropped both month-over-month and year-over-year in January 2018, experiencing their largest annual decline in over three years, according to a report from the National Association of Realtors.

NAR’s Existing-Home Sales calculations track “completed transactions that include single-family homes, townhomes, condominiums, and co-ops.” Existing-home sales saw a 3.2 decrease in January, hitting a seasonally adjusted annual rate of 5.38 million. That’s down from a revised 5.56 million sales in December 2017. That puts sales 4.8 percent below a year ago, which makes for the largest annual decline since August 2014’s 5.5 percent. Sales are also at their slowest pace since September 2017 (5.37 million).

“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,” said Lawrence Yun, NAR Chief Economist. “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.”

Single-family home sales declined 3.8 percent to a seasonally adjusted annual rate of 4.76 million in January, down from 4.95 million in December. This puts them 4.8 percent below the 5.00 million pace a year ago. The median existing single-family home price was $241,700 in January, an increase of 5.7 percent over January 2017’s totals.

The median existing-home price for January 2018 was $240,500, up 5.8 percent from January 2017’s median of $227,300. According to NAR, January marked the 71st straight month of year-over-year price gains.

Although total housing inventory at the end of January increased 4.1 percent to 1.52 million homes, that still puts the total 9.5 percent lower than a year earlier (1.68 million). Moreover, inventory has been falling consistently year-over-year for 32 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, as compared to a 3.6-month supply in January 2017.

“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 said. “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.”

Cheryl Young, Senior Economist for Trulia, said, “Demand stayed high despite headwinds of high prices and low inventory facing homebuyers. As a result, existing home sales accounted for 26.1 percent of inventory sold, staying above 2005’s peak rate of inventory sold.”

Pointing out that January 2018 was the first month in which the effects of the tax reform bill began to take effect, Young added that “it remains to be seen whether these changes are impacting home buying, especially in pricey markets. With the home buying season imminent, we look forward to seeing when last year’s high in housing starts and permits will manifest in inventory.”

You can read NAR’s full breakdown of home sales by clicking here.

About Author: David Wharton

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