Existing Home Sales
January 23, 2015
WASHINGTON (MarketWatch) — Data released Friday showed that existing home sales dipped in 2014, the first decline since 2010, despite low mortgage rates and other factors that should have helped the market.
For all of 2014, existing home sales dipped to 4.93 million sales, a 3.1% decline from 2013, the National Association of Realtors reported.
Lawrence Yun, NAR chief economist, said the drop in sales last year was “mildly disappointing,” but said he expects sales to rebound this year.
Some of the factors that should have pushed home sales higher include a strengthening labor market, higher consumer confidence, and mortgage rates that refuse to go up.
“All the indicators would have pointed to higher sales,” Yun said.
There should be pent-up demand that will help the market this year, he said.
Meanwhile, sales rose 2.4% in December to a seasonally adjusted annual rate of 5.04 million.
Economists polled by MarketWatch had expected a December sales rate of 5.08 million from the initial November estimate of 4.93 million. On Friday NAR revised November’s sales rate to 4.92 million.
Stocks dipped at the open on Friday. The S&P 500 index SPX, -0.29% was down 6 points to 2,057.
Sales were boosted by a large gain in the West, which had been weak throughout the year.
Also Friday, NAR reported that the median sales price of used homes reached $209,500 in December, up 6.0% from the year-earlier period. For 2014 the median sales price reached $208,500, up 5.8% from the prior year.
Yun said there has been a modest acceleration of prices towards the end of 2014.
Low inventory levels have been supporting price growth but also limiting sales. At the end of December, inventory was 1.85 million existing homes for sale, a 4.4-month supply at the current sales pace, down from 5.1 months in November. Compared with a year earlier, there is a slight decline in inventories from December, the first decline in 16 months.
Yun said that there needs to be a sharp boost in new home construction to boost inventories.
Analysts were divided on the outlook for housing.
“Overall, we look for housing market momentum to continue gradually improving throughout 2015 as stronger employment, wage, and confidence trends among consumers increase demand for shelter,” said Gennadiy Goldberg, economist at TD Securities.
Easier rules to help first-time homebuyers get into the market may also help.
But Ian Shepherdson of Pantheon Economics, was not convinced.
“It would be very dangerous…to extrapolate these single observations into expectations of a sustained pick-up in housing market activity. Mortgage demand is flat, and homebuilders report no net increase in activity in recent months. We expect no meaningful improvement in the housing market through the first half of the year, at least,” he wrote in a report prior to the data release.
Yun said that one factor dampening sales may be that homeowners are essentially frozen in place — so comfortable with their current low mortgage rates they are reluctant to move.
In 2014, the average tenure of homeowners residing in a home rose to 10 years, above the average of seven years, Yun said.
David Berson, chief economist at Nationwide, said he expects sales growth between 5% and 10% in 2015.
The key unknowns are the pace of household formation and mortgage underwriting, he said.
The Federal Reserve’s first increase to its benchmark interest rate since 2007 may boost mortgage rates this year, but only slightly, Berson said.
“The Fed is not going to move the federal funds rate up to 4% — our guess is that the funds rate will be 0.5% at the end of the year,” he said.
As a result, mortgage rates may rise to between 4% and 4.5%, up from their most recent rate of 3.8%, he added.