The sales of pre-owned homes in the US rose in the last month of 2019 by 3.6% compared to the month before. Economists had forecasts monthly gains of just 1.3% for December, a rate of 5.43 million units. Meanwhile, sales rose 10.8% in the 12 months through December compared to the year before.
- Existing home sales hit a two-year high in December 2019 at 3.6% vs. 1.3% expected.
- Low borrowing costs and unemployment are likely behind the uptick in activity in the housing market.
- The market continues to suffer from a shortage of land and available properties for sale.
Home sales saw strong activity last month, hitting well above expectations. Sales rose in the Northeast, West, and the South, which accounts for the largest population size. Sales fell in the Midwest. Existing home sales make up approximately 90% of all home sales in the US, and rose 10% annually last month.
With the 3.5% employment rate at the lowest point in decades, the labor market is facilitating demand for housing, allowing newcomers to enter the market. This has been aided by the improved borrowing conditions seen lately. Mortgage finance firm Freddie Mac cites the average national interest rate on a 30-year fixed mortgage at 3.65%, below the multi-year peaks seen earlier in the year.
Dire Housing Shortage
While demand is strong, the market is restricted by a lack of available inventory. NAR chief economist referred to the housing shortage as “dire” in the latest report, saying “we need to build more.”
— Whetstone Analysis LLC (@AnalysisLlc) January 22, 2020
A 6-7 month supply of homes is considered to be a healthy balance between supply and demand. At the current pace of sales, there was a 3-month supply of homes on the market at the end of last month compared to 3.7 months in November and in December 2018. Last month’s inventory was the lowest seen in 20 years of NAR records. The lack of supply has contributed to higher prices on homes, with the median price last month rising 7.8% annually to $274,500.
The lack of homes is felt the most at the cheaper end of the market where affordable homes are the scarcest. The availability of homes for sale below $100,000 dropped 14.3% last month compared to the year before. Homebuilder confidence held firm near a 20-year high this month, and construction of new homes hit the highest point in December since 2006, perhaps indicating an influx of supply in the near-to-mid future.
Gold prices have remained relatively flat since the release of the housing market data. Spot gold last traded at $1,555.45/oz, down -0.06% with a high of $1,559.62/oz and a low of $1,550.86/oz. Gold has struggled to find momentum due to risk-averse sentiment throughout the market, with mixed activity in the international stock markets muddying the waters. All eyes are on the World Economic Forum annual meeting scheduled to take place in Davos, Switzerland later this week.