Does the November report signal a slowdown in the housing market?
Existing home sales dropped in November, according to the National Association of Realtors. The annual pace of 4.90 million sales fell from 5.12 million in October.
Year-over-year, the sales pace was down 1.2%, which was the first time in 29 months that sales registered a decline from the previous year.
Lawrence Yun, the NAR chief economist said in a press release, “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit.”
A few additional notes on the November report:
- The median sales price $196,300 was up 9.4% from the previous year.
- Inventory ticked up to 5.01 months of supply.
- 14% of sales were distressed.
- The average discount for foreclosures was 17% and for short sales it was 13%.
Now for the analysis.
1. (Wall Street Journal) “Home sales surged this summer even after mortgage rates spiked in June. But there were signs by September that demand was waning among buyers who weren’t already active in the market before the rate surge.”
This article identifies five reasons sales have slowed:
- Mortgage rates increases
- Higher sales prices
- Less investor activity
- The government shutdown (though this is hard to quantify)
- Low inventory
The article also included an interesting example of how higher mortgage rates can affect what borrowers can afford.
For a borrower looking to make a $1,000 monthly payment, rates of around 3.5% in April allowed a homeowner to borrow as much as $222,000. At today’s rates, by contrast, that $1,000 monthly payment allows for a mortgage of $197,000. In other words, higher rates have reduced buyers’ purchasing power by 11%.
2. (Calculated risk blog) “The NAR reported that 14% of sales were distressed in November… last year the NAR reported that 22% of sales were distressed.”
McBride mentions this in context of “conventional sales”, which overall are higher. He sees the report as solid. (Read more).
3. Twitter Reactions:
Trulia’s chief economist Jed Kolko wrote on Twitter:
Non-distressed existing home sales up 9% y/y, but down for three months straight. Not good. Tight credit, higher rates, shutdown …
— Jed Kolko (@JedKolko) December 19, 2013
Wall Street Journal reporter Nick Timiraos gave a historical perspective. This is the best year for sales since 2007.
Annual existing home sales: 2007 5.04M, 2008 4.11M, 2009 4.34M, 2010 4.19M, 2011 4.26M, 2012 4.65M, *2013 4.71M *(2013 through Nov)
— Nick Timiraos (@NickTimiraos) December 19, 2013