January Home Sales Remain Positive

On Tuesday, the National Association of Realtors released their report on the state of the housing market for January 2016. The results? Despite expectations of a decline, total existing-home sales actually increased slightly in the first month of the year, reaching a seasonally-adjusted annual rate of 5.47 million! At the same time, home prices continued their upward climb while mortgage rates remained in free fall.

Although the December-to-January increase in home sales was quite small at just 0.4%, it is significantly better than the negative number that many expected for the month. More importantly, January 2016 saw a full 11% increase compared to January 2015, which is the largest year-over-year gain since 16.3% in July 2013.

The number of existing-homes sold wasn't the only index to see strong results in January, with the median price of these homes coming in at $213,800. This represents a year-over-year improvement of 8.2% as well as the 47th consecutive month of year-over-year price growth. The usual suspect for this kind of rapid price growth is supply, and supply has indeed remained tight. Despite rising 3.4% from December to January, total housing inventory was 2.2% lower than at the same time last year. At the current sales pace, the 1.82 million homes for sale represents just a 4-month inventory.

NAR chief economist Lawrence Yun sees this as a bad sign for the market as a whole, saying that "The spring buying season is right around the corner and current supply levels aren't even close to what's needed to accommodate the subsequent growth in housing demand." Yun went on to add that, "Home prices ascending near or above double-digit appreciation aren't healthy – especially considering the fact that household income and wages are barely rising."

If home prices are rising at an unhealthy rate, why are home sales still increasing? The likely answer is the ongoing decline of mortgage rates, which averaged just 3.87% in January (compared to 3.96% the month before). In fact, the current average for a 30-year fixed-rate mortgage is just 3.62%, dropping from 3.65% last week. Last year at this time, 30-year mortgage rates averaged 3.80%.

The share of first-time home buyers remained constant from December to January at 32%, up from 28% at the same time last year. This number is expected to rise as more and more millennials enter the housing market in the coming months and years. 

Regionally, only the West saw a decrease in homes sold in January, falling 4.1% from December. Both the Northeast (2.7%) and the Midwest (4%) saw gains, while the South remained flat.