December 2017 Existing Home Sales

Existing homes sales declined at the end of 2017 but edged higher for the year, putting in the best annual tally since 2006.  Data from the National Association of Realtors (NAR) show sales dropped 3.3 in December to 5.57 million annualized units, a decline from the downwardly revised tally of 5.78 million in November (originally 5.81 million).  Despite the revision, November 2017 was still the best month of the current economic expansion.

While the magnitudes of decline differed, all four major regions experienced lower sales volume in December.  Purchases in the West were setback 1.6 percent for the month and were 0.8 percent lower versus a year ago.  Sales in the South declined 1.7 percent, but the largest region managed an uptick of 3.5 percent compared to the same period a year earlier.  Midwest transactions dropped 6.3 percent, while homes in the Northeast traded hands 7.5 percent less than in November; these two regions were up 1.5 percent and 2.6 percent respectively on a 12-month look back.

Inventory levels might be the most interesting part of this release.  Despite a relatively strong year of transactions, posted for-sale signs are in short supply.  Inventory dropped 11.4 percent to just 1.48 million units as 2017 came to a close.  Versus a year ago, the stock of homes dropped 10.3 percent and has been negative for 31 consecutive months.  Unsold inventory represents a 3.2 month supply based on the current pace of sales, the lowest level since the NAR began tracking in 1999 and down from 3.6 months a year ago.

Interest rates rose for the third month in a row.  According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.95 percent, up from 3.92 in November.  For all of 2017, this rate proxy averaged 3.99 percent, up from 3.65 percent in 2016.  If this rise continues, it could impact affordability going forward, especially when combined with the median-priced home continuing to trend upward (increasing 5.8 percent to $248,100 in the past year).

Despite the monthly setback, sales of existing homes remain in an uptrend.  However, this indicator could be facing some headwinds.  As mentioned earlier, borrowing costs and prices have been rising, both of which impact affordability.  These developments are only complicated further by slow wage growth for the average American.  Affordability could become 2018’s housing narrative.  Nonetheless, this indicator currently remains a net positive for the economy.