Existing Home Inventory Hits Record Low

News

Existing home sales finished out 2016 with
a generally expected decline.  Still, the
National Association of Realtors® (NAR) said today that 2016 overall was the
best year for existing home sales in a decade.

Sales of existing single-family homes,
townhomes, condominiums, and co-ops were at a seasonally adjusted rate of 5.49
million
in December.  This was down 2.8
percent from an upwardly revised (from 5.61 million) 5.65 million units in
November. The month’s slide brought sales down to only 0.7 percent higher than they
were a year ago compared to a 15.4 percent year-over-year increase in November.

NAR estimated that sales for the year as a
whole were 5.45 million units.  This
surpasses the 2015 total of 5.25 million and is the highest total since 2006
when sales reached 6.48 million.  

Analysts
polled by Econoday had expected sales to slide, but not quite so far.  They were looking within a range of 5.45 to
5.59 million, with a consensus of 5.55, which would have been a 1.1 percent
decline.

Single-family
home sales
were at a seasonally adjusted annual rate of 4.88 million in
December, a loss of 1.8 percent compared to from November.  The December 2016 sales were 1.5 percent
higher than those in December 2015, a 4.81 million pace.  Existing condominium and co-op sales dropped
10.3 percent to a seasonally adjusted annual rate of 610,000 units, and are now
4.7 percent below the previous year.

Lawrence Yun,
NAR chief economist, says the housing market’s best year since the Great
Recession ended on a healthy but somewhat softer note. “Solid job creation
throughout 2016 and exceptionally low mortgage rates translated into a good
year for the housing market,” he said. “However, higher mortgage rates and home
prices combined with record low inventory levels stunted sales in much of the
country in December.”

Added Yun, “While a lack
of listings
and fast rising home prices was a headwind all year, the surge in
rates since early November ultimately caught some prospective buyers off guard
and dimmed their appetite or ability to buy a home as 2016 came to an end.” 

The inventory of existing homes
shrunk to the lowest level in NAR’s records which date back to 1999.  There were 1.65 million existing homes
available for sale at the end of December, down 10.8 percent from November and
6.3 percent from the previous December. 
Inventories have fallen year-over-year for 19 consecutive months.  NAR estimates that the current inventory
represents a 3.6-month supply at the current rate of sales, down from 3.9
percent in December 2015.

The median price
for all types of existing homes sold during the last month of the year was $232,200,
a 4.0 percent gain from the December 2015 median of $223,200 and the 58th
consecutive month of year-over-year price increases.  Single-family homes sold at a median price of
$233,500, up 3.8 percent while condo prices rose 5.5 percent on an annual
basis, to $221,600.

 “Housing affordability for both buying and
renting remains a pressing concern because of another year of insufficient home
construction,” said Yun. “Given current population and economic growth trends,
housing starts should be in the range of 1.5 million to 1.6 million completions
and not stuck at recessionary levels. More needs to be done to address the
regulatory and cost burdens preventing builders from ramping up production.”

Five percent of December
home sales were foreclosures and 2 percent were short sales, a slight uptick
from the 6 percent share of distressed sales in November but down from an 8
percent share the previous December.   Foreclosures sold for an average of 20 percent
below market value in December (17 percent in November), while short sales were
discounted 10 percent (16 percent in November).

Investors accounted for
15 percent of sales during the month, up from 12 percent in November, and 59
percent of them paid all cash for the properties they bought. Twenty-one
percent of the total transactions in December were all cash. 

Thirty-two percent of
home buyers in December were first-timers; unchanged from both the previous
month and a year earlier.  This was also
the share for the entirety of 2016.  Yun
noted that constrained inventory and climbing rents, home prices and mortgage
rates mean, “It’s not getting any easier to be a first-time buyer.  It’ll take more entry-level supply, continued
job gains and even stronger wage growth for first-timers to make up a greater
share of the market,” he said.

NAR President William E.
Brown says Realtors look forward to expressing to the Federal Housing
Administration why it is necessary to follow through with the previously
announced decision to reduce the cost of mortgage insurance. (The reduction was
suspended by the incoming Trump Administration.)  Brown said that cutting annual premiums from
0.85 percent to 0.60 percent makes an FHA-insured mortgage a more viable and
affordable option for first-time buyers.

“Without the premium
reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face
higher costs and between 30,000 and 40,000 would-be buyers will be prevented
from entering the market,” he said.

Marketing time rose in December
to a typical period of 52 days from 43 days in November but as six days shorter
than typical “days on market” in December 2015. 
Short sales were on the market the longest at a median of 97 days in
December, while foreclosures sold in 53 days and non-distressed homes took 50
days. Thirty-seven percent of homes sold in December were on the market for
less than a month.

Existing-home
sales in the Northeast slid 6.2 percent to an annual rate of 760,000, but are
still 2.7 percent above a year earlier. The median price was down 3.8 percent
year-over-year to $245,900.  

Sales also dipped in the Midwest, falling 3.8 percent to an
annual rate of 1.28 million in December. 
The pace remains 2.4 percent ahead of last year. The median price in the
Midwest was $178,400, up by 4.6 percent on an annual basis.

Sales in the South were
unchanged from November at an annual rate of 2.25 million and were 0.4 percent
higher than in December 2015.  The median price in the South was
$207,600, a 6.5 percent annual increase.

The West saw sales decline
by 4.8 percent for the month and 1.6 percent annually to a rate of 1.20 million
units.  The median price in the West was $341,000, up 6.0
percent from December 2015.

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