As reported last week, home sales finished out the year on a down note with both new home and existing home sales retreating from November’s levels. Rising interest rates along with an inventory of existing homes that was the smallest in the National Association of Realtors’ (NAR’s) record books got the blame.
Sales numbers of course reflect buying decisions made weeks earlier, perhaps even before the recent rate increases. This week’s pending home sales figures for December could indicate the pullback was only temporary and buyers are back on track. NAR reports that its Pending Home Sales Index (PHSI) based on home purchase contracts, rose 1.6% in December and is running slightly ahead of last year’s numbers.
Lawrence Yun, NAR chief economist, said the pending sales were encouraging but warned, “Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
The tight inventory, a 3.6 -month supply at the end of the year, is even more discouraging according to Yun who points out a large portion of available homes are at the upper end of the market. In December, sales of homes priced above $250,000 increased by 10% from the previous December while home sales in the $100,000 to $250,000 tier grew 2.3% and those in the under $100,000 category fell 11.6%.
Construction spending numbers for December were down overall but there was an encouraging little nugget relating to new home inventories. The end-of-year estimate of single-family construction spending was only 4.3% higher than in 2015 but that number may be masking a recent change. Cumulative month-over-month changes in the fourth quarter alone added up to 3.1%.
The Case-Shiller price indices for November joined the other major indexes to again demonstrate the long-expected slowdown in price increases just isn’t happening. With a 5.6% annual rate of appreciation, Case-Shiller’s national number was well below the 7.1% estimate for CoreLogic, but all four home price indices showed larger annual price gains in November than in October.
The Federal Reserve Open Market Committee (FOMC) finished up their January two-day meeting on Wednesday and, no surprise, voted to continue a policy of no sudden moves. Their public statement gave a nod to a strengthening labor market and moderate economic expansion but cited low inflation and soft fixed business investment as among reasons they will hold the line at a half to three-quarter percent for the fed funds rate. The announcement added nothing to the indication last month that rates might be raised twice more this year, just that “economic conditions will evolve in a manner that will warrant only gradual increases in the fed funds rate.”