Existing Home Sales Maintain Downward Trend
Sales of all existing homes declined 5.3% to 4.49 million units in January. Purchases of single-family homes fell 4.7% to an annual rate of 4.05 million units, which is 36% below the cycle peak in September 2005 (6.34 million units).
Stepping back in time, the largest drop in sales of existing single-family homes (see table 1) was in the 1981-82 recession (-45.3%).
The median price of an existing single-family home was $169,900 in January, down 2.9% from the prior month and down 13.8% from a year ago. In December, the price of an existing single-family home had dropped 14.6% from a year ago. To this extent there is a moderation in the pace of price declines.
However, the median price of an existing single-family home has dropped 26.4% from the peak in July 2006 (see table 2). The median decline in home prices across business cycles is only 3.9%. Therefore, the current decline in home prices is a distinct outlier.
The inventory situation of existing single-family homes bodes poorly for home prices in the months ahead. The seasonally adjusted inventory of existing single-family homes has hovered above a 9.3-month supply mark in the past twelve months. In January, the inventory-sales ratio was a 9.9-month supply, up from a 9.7-month supply the previous month.
Other details of the report indicate that sales of existing homes fell in three regions of the nation (Northeast: -14.7%, Midwest: -5.7%, and South: -5.8%) but held steady in the West. The National Association of Realtors indicated 45% of sales in January were foreclosed homes or lender mediated short sales, with the largest percentage of these sales occurring in California. The $8000 tax credit for first-time home buyers, the raised limit for conforming loans, and lower mortgage rates due to the Fed’s purchase of mortgage securities are factors supporting expectations of a recovery in home sales. The Fed announced the program under which it would purchase mortgage securities, both direct obligations of government-sponsored enterprises (Fannie Mae, Freddie Mac, and the Federal Home Loan Banks) and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae on November 25, 2008. The 30-year fixed rate mortgage was a few basis points over 6.00% prior to the announcement of this program. As of the week ended February 20, the 30-year mortgage rate was 5.04%, a full percentage-point lower. From a historical perspective, mortgage rates are at historical lows (see chart 5).
