The latest report from the National Association of Realtors (NAR) indicated a 1.3% drop in existing home sales for the month of January, with sales falling to a seasonally adjusted annual rate of 5.46 million units. While sales dropped, they were higher than expected, with a 1.8% to 5.43 million units drop initially forecast.
- NAR reported a drop in existing home sales in January to 5.46 million units vs. 5.43 million expected.
- It would take 3.1 months to exhaust the current inventory at January’s sales pace.
- Strong building permit numbers likely indicates increased activity in the future – permits were at a 13-year high.
Sales were unchanged in the Northeast, rising in the Midwest and populous South. Sales fell in the West, where existing homes are the most expensive. The current inventory would take 3.1 months to sell at last month’s pace, up from 3.0 months in December and down from 3.8 months in January 2019. A supply of six to seven months is considered to be a healthy balance between supply and demand, with supply currently very tight. January saw 1.42 million pre-owned homes for sale, down 10.7% from this time last year. The median price for an existing home rose 6.8% annually to $2,66,300.
The tight supply may loosen over the coming months, with high levels of building permits indicating stronger activity in the future. Permits rose 9.2% in January to pre-recession numbers, the highest level since March 2007. The number of homes being built last month was the highest since February 2007. Existing home sales, which account for 90% of home sales, rose 9.6% annually in January, despite the monthly decline.
Existing home sales pulled back from the fastest rate since Feb. 2018, down 1.3% from an annualized 5.53 million units in December to 5.46 million units in January. Sales were stronger in the Midwest, but weaker in the West. pic.twitter.com/s6vAJ8djl5
— Chad Moutray (@chadmoutray) February 21, 2020
Interest Rates Support the Market
The market is still being propped up by a drop in mortgage rates which are now at the lowest point in three years. The Federal Reserve implanted the first rate cuts in a decade last year, and has indicated that it will leave the benchmark rate of interest unchanged for the coming year at least. Low interest rates improve affordability and stimulate the economy, which looks set to continue its expansion for the 11th year in a row.
Moderate expansion is forecast despite headwinds in the form of weak business investment as a result of the US/China trade war, lower consumer spending, and the COVID-19 virus outbreak which has impacted manufacturing and business spending. The outbreak has placed over 10% of the world’s population under quarantine, with major disruption to supply chains likely to ripple throughout the world.
The IMS Markit manufacturing PMI, released earlier today, indicated contraction in outputs for the first time in 13 years due to the outbreak. However, the Federal Reserve is confident that the current model for US economic policy can continue moderate growth in the face of geopolitical uncertainty.
NAR Chairman Lawrence Yun commented on the report, saying “Existing-home sales are off to a strong start at 5.46 million. The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales."
Yun pointed out the rise of younger buyers under 35 and in minority households meant “an increasing number of Americans can build wealth by owning real estate,” adding that the lack of affordable inventory and home construction needed to see significant improvement in order to further expand opportunities for new buyers.
Gold has held strong gains in today’s session with weak manufacturing performance and an in-line drop in existing home sales. Spot gold last traded at $1,643.18.oz, up 1.64% with a high of $1,648.24/oz and a low of $1,617.68/oz. The ongoing news of the COVID-19 outbreak has led to risk-averse sentiment in the markets, and the latest manufacturing report confirms fears that the outbreak will impact US industries.