Is the Housing Market Entering a Deep Freeze?

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After posting the best year since before the Great Recession, existing-home sales continued their downward trend last month to reach their worst level in a year-and-a-half. Making matters worse, first-time homebuyers are being pushed out of the market as prices climb higher.

The National Association of Realtors announced Friday that total existing-home sales – which are completed transactions of single-family homes, town homes, condos, and co-ops — dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million units in January compared to 4.87 million units in the previous month. Keeping with the general tone of recent housing news, the results were weaker than expected.

Economists estimated an annual pace of about 4.68 million units. Sales have now missed expectations for seven consecutive months. Furthermore, sales are also 5.1 percent below the 4.87-million-unit pace seen in January 2013. This is the third consecutive month that sales were below year-ago levels, and last month was the slowest since July 2012, when sales stood at 4.59 million.

The frigid weather conditions have received most of the blame in recent months for weak economic conditions, but other problems remain. “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception,” said Lawrence Yun, NAR chief economist. “Some housing activity will be delayed until spring.

“At the same time, we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices, and higher mortgage interest rates. These issues will hinder home sales activity until the positive factors of job growth and new supply from higher housing starts begin to make an impact.”

Housing affordability issues kept many people on the sidelines. First-time buyers accounted for only 26 percent of purchases last month, down from 27 percent in December and 30 percent a year earlier. In fact, this is the worst showing for first-time buyers since the NAR started keeping track of the measurement in October 2008. A normal reading would be closer to 40 percent. Meanwhile, the median existing-home price for all housing types in January jumped 10.7 percent year-over-year to $188,900.

Existing-home sales declined across the four major regions of the nation, but the Northeast held up the best, further proof that weather is not the only factor weighing on sales. The region experienced a decline of 3.1 percent, while sales in the South fell 3.5 percent. The Midwest posted a drop of 7.1 percent, and the West logged the biggest pullback as sales plunged 7.3 percent.

On the positive, existing-home sales for all of 2013 reached 5.09 million sales, which is 9.1 percent higher than 2012. It was also the best year since 2006, when sales hit 6.48 million units with the help of the housing bubble. However, momentum has been moving to the downside, and home prices should return to a more sustainable pace in the near future.

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