Us home sales slide for first time in a year

Pinellas Country, Florida Photo: Walterpro

Existing home sales declined in the US for the first time in over a year just before Christmas.

Completed transactions, including single-family homes, townhomes, condominiums and co-ops, fell 10.5 per cent to a seasonally adjusted annual rate of 4.76 million in November 2015, according to the the National Association of Realtors. After last month's decline, sales are now 3.8 per cent below a year ago - the first year-over-year decrease since September 2014.

Lawrence Yun, NAR chief economist, says multiple factors led to November's sales decline, but the primary reason could be an anomaly as the industry adjusts to the new Know Before You Owe rule.

"Sparse inventory and affordability issues continue to impede a large pool of buyers' ability to buy, which is holding back sales," he explained. "However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it's highly possible the stark sales decline wasn't because of sudden, withering demand."

However, the figures also follow a consistent decline in the NAR's pending home sales index, which is a forward-looking indicator for the market. Pending home sales in November declined for the third time in four months, as buyers continue to battle both rising home prices and limited homes available for sale. Although the index has increased year-over-year for 15 consecutive months, November's annual gain was the smallest since October 2014.

With existing housing inventory already below year ago levels, and new home construction still deficient, it's likely supply constraints and faster price appreciation will reappear once the spring buying season begins. Indeed, the national media existing home price for 2015 was forecast to be $220,700, around 6 per cent higher than 2014. November also saw prices increase for the 45th month in arow.

Mortgage rates, meanwhile, are also likely to rise in the near future, following the Federal Reserve's decision in December to raise short-term rates for the first time in years. The rise is only gradual, so impact will be minimal in the near future, but additional hikes will push borrowing costs to around 4.50 per cent by the end of next year, notes Yun.

"With home prices expected to continue rising, wages and new home construction need to start increasing substantially to preserve affordability," he adds.