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MARKET TRENDS: U.S. Existing Home Sales Decline Sharply in NovemberJanuary 8, 2016
Existing home sales sank considerably in November to the lowest pace in 19 months, but some of the decrease was due to delayed closings and disruption from a new lending disclosure rule.
Last week, the National Association of Realtors (NAR) announced that existing home sales fell 10.5% month-over-month in November to a seasonally adjusted annualized rate of 4.76 million. This figure was well below economist estimates of 5.32 million, and marked the first time since February this year that home sales came in at less than 5 million. The double-digit decline was also the sharpest since July 2010, when sales took a beating from the expiration of a home-buyer tax credit.
Currently at its lowest level since April 2014, plummeting sales of existing homes have been ascribed to delays caused by new mortgage red-tape and a diminishing supply of residences on the market. The Consumer Financial Protection Bureau implemented a new mortgage disclosure rule in October this year called “Know Before You Owe TILA-RESPA Integrated Disclosure” or TRID. This regulation, which aims to help consumers better understand the terms of their mortgages before they sign, may have delayed the completion of sales last month.
“November home sales without a doubt were heavily impacted by a new federal government rule regarding closing documents,” said Lawrence Yun, NAR chief economist, during a news conference as the figures were released. “Buying interest is there, it’s just that closings are not happening on a timely basis.”
Jim O’Sullivan, chief U.S. economist at High Frequency Economics stated, “The effect should be a one-time hit to the data and we expect the uptrend in sales to get back on track next month.”
It took 41 days to close a sale in November, compared to 36 days a year ago. The extended time frame means that some sales may have been pushed back into December. Compared with a year earlier, purchases decreased 3.8% in November on a seasonally adjusted basis. Sales fell in all major geographic regions, including the Northeast, Midwest, South and West.
Several realtors suggested that apart from new federal rules, pressure on housing inventories may have also contributed to the sales slump. The number of existing homes for sale fell 3.3% to 2.04 million in November.
“I think we’re still seeing a fair amount of tightness in active selling markets,” said Zillow Chief Economist, Svenja Gudell, adding that first-time buyers trying to enter the market at a lower price point are facing a particular shortage.
Housing prices have climbed faster than wages in many markets, making it more difficult for first-time buyers to save for a down payment. In November, the national median home price rose to $220,300, the 45th consecutive month of gains year over year, and 6.3% higher than the same month last year.
Nevertheless, an improving job market and relatively low mortgage rates have encouraged home buying this year. Unemployment at a healthy 5% has furnished more people with a sense of financial certainty. Despite November’s decline, home sales are on track for their best year since the current economic expansion began and are expected to rise roughly 5% for the entire year. Economists said that the underlying sales rate appears steady, despite the rule changes causing the drop last month.
Now that the central bank has increased its benchmark interest rate for the first time since 2006, mortgage costs may head higher next year. The average 30-year fixed mortgage rate has already risen to 3.97% from 3.8% a year ago, according to mortgage buyer Freddie Mac. However, the property market doesn’t appear to be disturbed by the prospect of higher interest rates – as of now, realtors expect that the rate environment will not be a significant deterrent to housing demand in 2016.