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Existing home sales fall again

HOUSTON, October 22, 2018 (PCW) -- Sales of existing homes fell 3.4% in September to a 5.15 million seasonally adjusted annual rate, the National Association of Realtors said Friday. Sales are down 4.1 % from a year ago and 10 % from the recent peak of 5.72 million in November 2017.

The combination of rising home prices and higher interest rates is likely weighing on housing activity. Home affordability overall has been trending lower after surging from 2009 to 2012 because at that time a combination of extraordinarily low interest rates and falling home prices made for a buyer's market.

Sales declined in three of the four regions tallied: sales fell 3.6 % for the month in the West and are 12.2 % below the September 2017 rate; sales declined 2.9 % in the Northeast and are 5.6 % below year-ago levels; and sales dropped 5.4 % in the South, leaving that region's sales rate 0.5 % below the year-ago pace. Sales were unchanged for the month in the Midwest but remain 1.5 % below the September 2017 level.

Sales in the market for existing single-family homes, which account for just under 90 % of total existing-home sales, also fell 3.4 % in September, coming in at a 4.58 million seasonally adjusted annual rate. From a year ago, sales are down 4.0 %. Sales were down across the four regions: sales fell 4.0 % in the West to 950,000; sales dropped 4.6 % in the South to 1.86 million; the Northeast saw a 3.4 % decline; and the Midwest posted a 0.8 % pullback.

Total inventory of existing single-family homes for sale declined 1.8 % to 1.66 million in September, the third decrease in a row, leaving the months' supply (inventory times 12 divided by the annual selling rate) at 4.3 for the fourth month in a row. However, that is still well above the recent low of 3.1 months in December 2017. The rise in months' supply has brought the figure back from ultra-low levels of late 2017 to the range that prevailed during the early 2000s.

According to some analysts, roughly four months of supply is the new buyer/seller equilibrium. Under this scenario, the unsold inventory of 4.4 months' supply in September is now a buyers' market.

The NAR's chart below shows months' supply for all types of homes (blue line), single-family houses (red line), and condos/co-ops (green line). The horizontal black line is at the level of four months' supply. Everything above the black line thus represents a buyer's market:

According to real estate analysts, sales are unlikely to move significantly higher in the coming months, and new-home construction is unlikely to contribute significantly to growth in gross domestic product in coming quarters.

The economy overall remains very healthy, according to economists, supported by a tight labor market, rising incomes, strong balance sheets, and high levels of consumer confidence. The main risks on the horizon are fallout from escalating trade wars and the ballooning federal deficits, which are likely to require significant funding in coming quarters and may drive long-term interest rates significantly higher. – Donna Todd

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