Home sales have been having a bit of a bad go. Sales of newly constructed homes have fallen significantly for two months in a row, and the Pending Home Sales Index for January didn’t bode well for future sales, falling to a near four-year low.
Three home price index reports this week provide more evidence that home price increases are slowing–but doing so very, very slowly.
Whether it is rising prices, higher interest rates, the long-lamented lack of inventory, or that buyers are holding off for the spring market, the recent downturn in home sales is beginning to look serious. As we reported last week, sales of existing homes fell for the second month. This week both new home and pending sales retreated in a major way. All three measures are showing slower sales than in January of last year.
New home sales took the biggest beating, dropping by 7.8% on top of a 9.3% decline in December. Sales dropped behind last January by 1%.
The National Association of Realtors’ (NAR’s) Pending Home Sales Index (PHSI) didn’t fare much better. It had eked out modest increases in each of the final three months of 2017, but it was all wiped out by a 4.7% plunge in January. Coupled with a downward revision to December’s number, the index dropped to 104.6, the lowest level since October 2014 and 3.8% behind last January’s reading. Pending sales (based on signed home purchase contracts) are generally predictive of existing home sales one or two months down the road.
It is hard to blame inventories for the new home sales slide. There was more than a five-months supply of newly constructed homes in all but one month in 2017 and in January it climbed to 6.1 months, considered a balanced market. But NAR chief economist Lawrence Yun is probably on solid ground with his complaints. January saw the lowest supply of existing homes in any January ever. Yun gave homebuilders credit for stepping up the pace but said two things are needed to get sales back on track: investors to start selling some of the thousands of homes they acquired as rentals during the recession, and “hesitant homeowners” getting into gear.
Price Gains Slowing
Three home price indices were released this week, and all showed that, in the words of Case-Shiller’s David Blitzer, price gains are “leveling off.”
You couldn’t tell that from the annual increases posted by Case-Shiller, the Federal Housing Finance Agency, and Black Knight. All December year-over-year numbers were higher than those in November, and all in the 6.3-6.7% range. However, the monthly gains are clearly slowing. All were either unchanged from or lower than in November, and all were under 0.3%. In time these numbers will be reflected in decelerating annual rates.
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