US home sales climbed in January despite weaker economy

Friday, February 19, 2016, Vol. 40, No. 8

WASHINGTON (AP) — U.S. home sales crept upward in January, a sign that demand for housing remains strong amid signs of slower growth across the broader economy.

But buyers face a dilemma: the number of listings on the market has fallen, giving them fewer choices and pushing prices to rise quickly.

Sales of existing homes rose 0.4 percent last month to a seasonally adjusted annual rate of 5.47 million, the National Association of Realtors said Tuesday. The gains build on a strong 2015 when sales reached their highest level in nine years. Last year ended with a 12.1 percent surge in December sales, as new regulations had delayed closings in November.

Yet real estate enters 2016 at a crossroads: Job growth and low mortgage rates have fueled demand and boosted home sales to levels last glimpsed in the waning months of the housing bubble that triggered the Great Recession. Yet fewer homes are available to purchase, causing price growth to eclipse wage grains and capping the potential for sales to rise further.

"Tight inventories could deter some potential homebuyers to enter the market, and will likely continue to place upward pressure on prices," said Derek Lindsey, an economist at the bank BNP Paribas. "Still, we expect a resilient labor markets and solid real income gains to continue to support a slow and steady housing recovery."

The median home sales price was $213,800 in January, an 8.2 percent annual increase from a year ago.

Driving those price increases are an absence of choices for buyers. The number of listings on the market in January fell 2.2 percent from a year ago. At the current sales rate, the inventory of homes would be exhausted in four months. A balanced market usually contains six months' supply.

Buyers are also competing against investors. The sale of purchases going to investors in January was 17 percent, up from 15 percent in the prior month. Purchases increased in the Northeast and Midwest, but stayed unchanged in the South and fell in the South.

Many homeowners are reluctant to sell, as they're enjoying savings from low mortgage rates and lack enough equity to comfortably upgrade to another house.

The consequence is that would-be buyers face more competition when bidding on homes — and rising prices.

"So far sales have been bulletproof to price increases, but this is unsustainable in a slowly growing economy unless inventory improves," said Nela Richardson, chief economist at the real estate brokerage Redfin.

The affordability pressures are showing up in mortgage down payments. As a percentage of the purchase price, down payment levels fell slightly in the closing months of 2015, according to LendingTree, an online lender. But down payments increased in absolute terms to an average of $51,721 in the final three months of the year from $48,924 in the prior quarter.

Hiring has buttressed sales. Employers have added 2.67 million jobs in the past year, and the unemployment rate has fallen to 4.9 percent. Pay growth has been less robust, although it has shown recent signs of accelerating with a 2.5 percent increase from a year ago to an average of $25.39 an hour.

It remains to be seen whether the pace of job growth will endure amid signs that growth has come close to stalling. The slowdown in China and turmoil in emerging economies such as Brazil and Russia kicked off a decline in commodity prices such as oil, which then seeped into falling U.S. stock prices and a dollar that risen in value to levels that hurt exports.

But the global chaos may have temporarily helped U.S. real estate. As investors parked their money in 10-year U.S. Treasury notes, the cost of borrowing dropped for both the government and homebuyers.

Mortgage buyer Freddie Mac says the average rate on a 30-year, fixed-rate mortgage was near record lows at 3.65 percent last week, significantly less than the historic average of roughly 6 percent.