* Home sales drop 5.1 percent in January to 1-1/2 year low
* Median price up 10.7 percent from year ago
* Supply improves, but first-time buyers increasingly scarce
By Lucia Mutikani
WASHINGTON, Feb 21 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
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
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.