January existing home sales fell 3.2 percent from December to 5.38 million (SAAR), the second weak month in a row. January sales were down 4.8 percent from a year ago, the largest annual decline since August 2014.
A second month in a row of lackluster existing home sales is not an ideal way to begin 2018. Some of the weakness can probably be attributed to bad weather early in the month, a temporary blip that still doesn’t fully obscure what could be more lasting challenges emerging in the market. Mortgage interest rates have been rising strongly since the start of the year. While rates are still low compared to historic norms, if the rate increases scared away some would-be buyers by denting affordability, that does not bode well for the rest of the year in which rates are only expected to go up. Low inventory also continues to weigh on the market, and shows precious few signs of easing. The existing sales market plateaued at an annual rate of around 5.5 million sales in the second half of last year, well below levels of 6-6.5 million we might otherwise expect to see. To get to those levels, there simply needs to be more inventory available to buy. Would-be sellers need to feel confident about two things, in particular, for this to happen. They need to feel comfortable they can sell and successfully turn around and become a buyer without having to face intense competition and fast-rising prices. And they need to get to a point where they aren’t hanging on to their homes longer than they otherwise might have in hopes of extracting higher and higher profits. One way to get there, perhaps counter-intuitively, might be to hope for a bit of a cool-down from the torrid pace of appreciation the market has been experiencing.
