Sales of previously owned U.S. homes dropped in January to the lowest level in more than a year as harsh winter weather combined with a lack of supply, strict lending rules and declining affordability to depress demand.
Purchases decreased 5.1 percent to a 4.62 million annual rate last month, the fewest since July 2012, figures from the National Association of Realtors showed today in Washington. Sales fell in all four regions of the country, indicating unusually frigid temperatures were only partly to blame.
“The weather played some role, but just as much of a role was played by lower inventories, higher mortgage rates, slightly higher prices and tighter credit,” said Robert Rosener, an economist at Credit Agricole CIB in New York, who correctly projected the drop in sales. “We’re on a positive trajectory, and when the spring comes we should see a bounce back.”
The degree of rebound this year will hinge on continued gains in hiring and residential construction that will help overcome the hurdles of too-few properties and rising prices. These issues are particularly acute for first-time buyers, who last month made up the smallest share of the market since record-keeping began more than five years ago.
Stocks fell, after the Standard & Poor’s 500 Index climbed to within three points of a record, as Federal Reserve officials indicated the central bank is unlikely to slow the pace of stimulus cuts. The S&P 500 dropped 0.2 percent to 1,836.25 at the close in New York.
The median forecast of 79 economists surveyed by Bloomberg projected sales would drop to a 4.67 million rate. Estimates ranged from a 4.5 million pace to 4.9 million. December’s figure was unrevised at a 4.87 million pace.
Compared with a year earlier, purchases decreased 5.1 percent in January on an adjusted basis, today’s report showed. The median price of an existing home increased 10.7 percent from a year earlier to $188,900 in January.
The drop in sales was led by a 7.3 percent slump in the West, followed by a 7.1 percent decrease in the Midwest.
First-time buyers accounted for 26 percent of all purchases in January, the lowest in data going back to October 2008.
The number of existing properties on the market rose 7.3 percent from a year earlier to 1.9 million in January. At the current pace, it would take 4.9 months to sell those houses compared with 4.6 months at the end of December.
Less than a five months’ supply is considered a tight market, Lawrence Yun, NAR’s chief economist, said in a news conference today as the figures were released.
“The lack of supply is greatly hindering the buyer enthusiasm,” Yun said. Buyers “don’t want to see two homes, they want to see 10 homes before deciding” on such a major purchase, he said.
The figures also show some divergence in the market as sales of lower-priced homes are dropping, mainly because of a lack of supply, while demand for higher-priced properties is climbing, reflecting the rebound in wealth generated by rising stock prices, Yun said.
The split is also evident in the composition of properties sold, he said. Purchases of single-family homes decreased 5.8 percent to an annual rate of 4.05 million, the report showed. The sales pace for condominiums was little changed at 570,000.
Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008, three years after a record 7.08 million homes were sold.
Inclement weather in the eastern U.S. risks further restraining the housing market. Last month was the coldest January since 1994 in the contiguous U.S., based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Maryland. The Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said.
St. Louis Fed Bank President James Bullard, who doesn’t vote on the Federal Open Market Committee this year, said the central bank is on target to continue scaling back stimulus, adding that soft economic data so far in 2014 is probably due to bad weather.
Builders have felt the sting of colder conditions. The pace of home construction fell 16 percent to an 880,000 annualized rate last month, the biggest decrease since February 2011, Commerce Department data showed last week.
Builder confidence also slumped as the weather slowed both potential buyer traffic and sales. The National Association of Home Builders/Wells Fargo sentiment gauge slumped to 46 this month from 56 in January, the biggest decline since monthly record-keeping began in 1985. Readings less than 50 mean more respondents reported poor market conditions than good.
Beyond weather, purchasing a home has become less affordable. The 30-year fixed mortgage rate averaged 4.33 in the week ended Feb. 20, up from 3.56 percent around the same time a year ago. After reaching a four-month low of 4.10 percent at the end of October, the average rate rose to 4.53 percent at the start of this year.
“If you recall back a couple quarters ago, there was a pretty adverse reaction to the increase in mortgage rates, even though they were slight and they’re still historically low by anybody’s standards,” Donald Tomnitz, chief executive officer of D.R. Horton Inc., said on a Jan. 28 conference call. As spring approaches, rates “will be less and less a factor.”