US home sales fall to 12-year low; glimmers of hope are emerging

WASHINGTON, Jan 20 (Reuters) – U.S. existing home sales fell to their lowest level in 12 years in December, but falling mortgage rates prompted cautious optimism that the struggling housing market might be on the verge of finding a floor.

Friday’s report from the National Association of Realtors also showed the median home price rising at the slowest rate since the start of the COVID-19 pandemic as sellers in some parts of the country resorted to discounts.

The Federal Reserve’s fastest rate hike cycle since the 1980s has pushed housing into recession.

“Existing home sales are lagging somewhat,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. “Lower mortgage rates could help support real estate activity in the months ahead.”

Sales of existing homes, which are counted when a deal is closed, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. This is the 11th consecutive monthly drop in sales, and the longest of its kind. since 1999.

Sales fell in the Northeast, South and Midwest. They were unchanged in the West. Economists polled by Reuters had forecast home sales to fall to a rate of 3.96 million units. The December data likely reflected contracts signed about two months earlier.

Home resales, which account for a large portion of U.S. home sales, fell 34.0% year-on-year in December. They fell 17.8% to 5.03 million units in 2022, the lowest annual total since 2014 and the biggest annual drop since 2008.

The continued decline in sales, which translated into lower brokerage commissions, was the latest indication that residential investment likely contracted in the fourth quarter, the seventh consecutive quarterly decline.

It would be the longest such streak since the collapse of the housing bubble triggered the Great Recession.

While a National Association of Home Builders survey this week showed confidence among builders of single-family homes was improving in January, morale remained depressed.

Single-family home construction rebounded in December, but future building permits fell to a more than 2.5-year low, and outside of the pandemic plunge, were at their lowest since February 2016.

Stocks on Wall Street were trading higher. The dollar appreciated against a basket of currencies. US Treasury prices fell.

MORTGAGE RATES DECLINE

The worst of the housing market rout is probably behind it, however. The 30-year fixed mortgage rate fell to 6.15% on average this week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.

The rate was down from 6.33% the previous week and has fallen from an average of 7.08% at the start of the fourth quarter, which was the highest since 2002. It remains well above the average of 3.56% over the same period last year. .

The median price of existing homes rose 2.3% from a year earlier to $366,900 in December, with NAR chief economist Lawrence Yun noting that “markets around half in the country are likely to offer potential buyers discounted prices compared to last year”.

The smallest price increase since May 2020, coupled with falling mortgage rates, could help improve affordability going forward, although much depends on supply. Loan applications to buy a home have increased so far this year, a sign that eager buyers are waiting in the wings.

House prices rose 10.2% in 2022, boosted by an acute shortage of homes for sale. Housing inventory stood at 970,000 units last year. Although this was an increase from 880,000 units in 2021, supply was the second lowest on record.

“House price growth is expected to continue to slow and we expect it to turn negative in 2023,” said Nancy Vanden Houten, US economist at Oxford Economics in New York. “The limited supply of homes for sale will prevent a sharp decline.”

In December, there were 970,000 homes on the market, down 13.4% from November but up 10.2% from a year ago. At the pace of December sales, it would take 2.9 months to deplete the current inventory of existing homes, compared to 1.7 months a year ago. This is considerably less than the 9.6 months of supply at the start of the 2007-2009 recession.

Although tight inventories remain a hurdle for buyers, the absence of excess supply means the housing market is unlikely to experience the dramatic slump seen during the Great Recession.

A four to seven month supply is considered a healthy balance between supply and demand. Properties generally remained on the market for 26 days last month, compared to 24 days in November.

Fifty-seven percent of homes sold in December had been on the market for less than a month. First-time buyers accounted for 31% of sales, compared to 30% a year ago. Cash sales accounted for 28% of transactions compared to 23% a year ago. Distressed sales, foreclosures and short sales accounted for just 1% of sales in December.

“While stabilizing affordability will be good news for potential home buyers, the lack of available inventory could remain a constraint on home buying activity,” said Orphe Divounguy, senior economist at Zillow.

Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci

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