Last Thursday saw yet more bad news coming out from the deteriorating American housing market. For January 2019, United States’ home sales collapsed to their lowest point in over three years. Housing prices themselves ticked up just modestly.
The statistics are anything but encouraging as they continue to indicate still more weakness and momentum loss within the overall important housing market. Keep in mind that this Real Estate sector is a key leading economic indicator too.
The National Association of Realtors revealed the grim statistics. They stated that the critical existing home sales category declined by a sobering 1.2 percent to an adjusted annual rate (seasonally adjusted) total of 4.94 million units for the past month. This chart below shows the negative ongoing trend all too well:
This abysmal number was good enough to take the low point record dating back to November of 2015. More than this, it came in substantially below the median analysts’ expectations rate of 5 million units. The NAR attempted to showcase some slightly good news in the December pace of sales getting a slightly higher revision.
Yet this January drop was not the first consecutive disappointment in existing home sales even. There had already been months of existing weakness within the American housing market. Compared to one year prior, existing home sales have plunged 8.5 percent versus the same time in 2018.
Fingers are pointing in several directions for the significant, disappointing, and ongoing setback in home sales. One substantial blow to the market has been the marked rise in U.S. interest rates dating back to 2016. The Federal Reserve has been on an interest rate raising crusade in an effort to normalize financial markets it upended after the Global Financial Crisis. Add to this more costly homes and a tighter existing inventory (that resulted from labor and land shortages), and you now have a recipe for serious trouble in the market.
Yet in the last few months, the fixed rate 30 year mortgage has come back down somewhat and inflation on housing prices has been decreasing. The median existing home price only rose 2.8 percent versus a year prior to touch $247,500 for January. This by itself represented the tiniest gain since February of 2012.
Yet despite this better news for the Real Estate market, existing home sales are falling consistently throughout the nation. In January, they declined in three out of the four national regions. The Northeast region was the only one that saw better home sales.
This decline in home sales has led to a growing backlog in unsold homes on the market. While December had 1.53 million units available, for January there were 1.59 million previously owned houses available on the market. This means at the January pace of sales, that the market would need 3.9 months to clear out the existing home inventory. This contrasted with December’s 3.7 months needed to clear the market.
But even these numbers show the ill health of the industry. Realtors consider a good six to seven months of supply necessary for there to be a healthy market balance factoring in both supply and demand.
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Fed policy makers have become so afraid of not having the necessary interest rate cutting tools to deal with the next recession and economic malaise that they have created the next economic crisis through their own actions of raising interest rates (to have the tools available). Existing home sales numbers feed through to stock and bond market prices and performances sooner or later.
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