Harsh weather, tight supply sink U.S. home sales

WASHINGTON Fri Feb 21, 2014 6:40pm EST

1 of 4. An existing home for sale is seen in Silver Spring, Maryland February 21, 2014.

Credit: Reuters/Gary Cameron

WASHINGTON (Reuters) - Severe cold weather and a shortage of houses on the market pushed U.S. home resales to an 18-month low in January, the latest indication economic activity has hit a soft patch.

The National Association of Realtors said on Friday that home sales dropped 5.1 percent last month to an annual rate of 4.62 million units, the lowest level since July 2012.

The Realtors group said unseasonably cold weather was partly to blame, but it also acknowledged some fundamental weakness, with fewer homes on the market to choose from and higher mortgage rates and prices reducing affordability.

"Some housing activity will be delayed until spring," said Lawrence Yun, NAR chief economist. "At the same time, we cannot ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates."

The 30-year fixed mortgage rate is about a full percentage point higher than it was a year ago, even though rates have come down a bit since hitting a two-year high in September.

Sales tumbled in the Northeast, South and Midwest, which were hit by snow storms and ice last month. But they were down 7.3 percent in the West, an indication that other factors apart from the weather also weighed on sales.

Home resales, which peaked in July, have declined in five of the last six months, and in January were down 5.1 percent from a year-ago.

Economists had expected sales to fall to a 4.68-million pace last month and some were not convinced that the weather had played a major role in the January slump.

"The weakness in existing home sales has been going on for some time now and needs to be acknowledged, particularly by the Federal Reserve," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

"The few hawks on the Fed could be quickly silenced if housing doesn't turn around in a more definite and fundamental fashion soon."

The U.S. central bank has been reducing the amount of money it pumps into the economy through monthly bond purchases, and minutes of the Fed's last meeting in January showed some officials thought it might be appropriate to raise interest rates "relatively soon."

ROOM FOR OPTIMISM

Freezing temperatures have hurt home building, manufacturing and hiring in December and January.

While most analysts see the weather-driven slowdown in economic activity as temporary and expect growth to rebound in the second quarter, there are growing concerns that there may be some underlying weakness in the economy, particularly given that growth was already slowing towards the end of 2013.

Some economists are optimistic home resales will pick-up once the weather starts warming up.

"Although higher mortgage rates and prices have reduced affordability somewhat, it is still much better than it was at the height of the housing boom," said Gus Faucher, a senior economist at PNC Financial in Pittsburgh.

"Many potential buyers, concerned about their financial situation, have put off purchases, but are now looking to buy a home as the recovery has proceeded."

In January, the inventory of unsold homes on the market rose 2.2 percent from December, pushing the months' supply to 4.9.

While that was up from December's 4.6 months, it remained below the 6.0 months that is normally considered as a healthy balance between supply and demand.

With inventory still tight, the median price for a previously owned home rose 10.7 percent from a year ago.

Higher house prices and lack of stock were slowing sales in the lower end of the market. First-time buyers accounted for 26 percent of the transactions, the smallest share since the Realtors group started tracking the series in October 2008.

A market share of 40 percent to 45 percent is considered by economists and real estate professionals as ideal.

The NAR, however, believes the worst of the supply squeeze is over, noting that the stock of unsold homes increased 7.3 percent from a year ago.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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Comments (16)
bertanderson wrote:
Don’t worry we should push to higher highs…the bulls are still strong and will not give in for a long time regardless of the signs. Just be careful in case of panic….probably still need a lot more negative economic news beyond weak earnings and revenue from bellwether companies.

Feb 21, 2014 10:30am EST  --  Report as abuse
rvm3 wrote:
Stop shilling- the declines were greatest in the West, which has had a record mild winter. You deliberately wrote that sentence to obfuscate this fact. And the “inventory” excuse of from the NAR, a biased source. The issue is affordability and a decline in household formation, facts many are willing to lie about it seems.

Feb 21, 2014 10:37am EST  --  Report as abuse
tatman wrote:
there are fundamental misleading statements in this article, not on behalf of the journalist, but the NAR (having been a broker for several years in the past, I am not unfamiliar with NAR’s skewing of data to reflect organization’s goals and objectives).

that there is a short supply of homes on the market is a complete fallacy. there are hundreds of thousands of homes sitting vacant RIGHT NOW across america, their previous owners victims of foreclosure. this has created swaths of blight which have transformed once welcoming neighborhoods into hell-holes.

the banking industry has restricted lending to such an extent that new buyers are permanently shuttered out of the market, or must accept loan conditions and interest rates that are so unfavorable that it makes home ownership a liability and a potential financial loss, rather than an investment and secure repository of wealth as it was in the decades prior to the financial meltdown of 2008.

credit has been wiped out for millions of americans — me included (and I have a very well-paying job). i will use myself as an example:

prior to 2008, i had never missed or been late on a credit card payment in my complete credit history of over 25 years. i had a platinum credit rating (score of 8+), and a completely flawless credit history. i had fixed rates of 9% or lower on every card, and tens of thousands of available credit. within 3 months of the financial meltdown, every one of my cards cancelled my available credit, leaving me with only debt on each account. although i was able to make payments as always, the debt to credit ratio was so skewed by the deletion of available credit, that i was suddenly downgraded to a high credit risk and unable to secure a credit account under even the most appalling of interest rates (variable 28%+ APR). this had a ripple effect throughout my entire financial life, leaving me unable to secure car loans, nor purchase property.

after being burned to such an extent, i am one who has left the credit market permanently. i am now cash-and-carry, and purchased a new car (with cash – no loans), and decided to rent versus invest in property. still remaining in an upper middle class bracket, i am receiving credit card offers daily in the mail, but all for variable rates nearing 30%. needless to say, i do not accept any of them, and have paid off and cancelled all of my credit cards except for one — the only one that treated me with respect as to my sterling credit history prior to the recession.

i am representative of so many in this country who find their lives have been forever altered by the banking practices that exploited individuals, while reaping profits at the expense of subprime re-packaged loans that drove our country into financial ruin.

i will NOT invest in property again — for the terms of a purchase i will qualify for would add on tens of thousands in interest payments to the terms of a loan, making the accrual of equity a distant and shattered dream.

welcome to the post-recession america.

Feb 21, 2014 10:50am EST  --  Report as abuse
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