Navigating the Ebb and Flow of Existing Home Sales

The most recent report on existing home sales arrived on Thursday, heralding a rise in home sales. At first glance, the news suggests a vital sign of recovery in the housing market. A closer look, however, raises questions about the relevance of these figures. Despite the increase, a trend of declining data over the past month suggests that the housing market might not be out of the woods just yet.

Understanding the Latest Home Sales Report

After seeing mortgage rates dip from 8.03% to 6.63%, an uptick in home sales was anticipated. This positive shift was supported by promising housing data, indicating a potential increase in demand due to the lowered rates. However, the trend did not continue, turning negative in the weeks that followed, mirroring the unsettling pattern seen in 2023 when mortgage rates climbed from 5.99% to 7.25%.

Looking into the details of the latest National Association of Realtors (NAR) report, we find that active inventory and monthly supply data remain at historic lows. This seasonal downtrend often leads to fewer homes on the market, and this year's trajectory is watched with particular interest. Weekly tracking points to an increase in inventory and new listings compared to the previous year.

Key highlights from the NAR report include an increase in existing-home sales by 3.1%, from the prior month to a seasonally adjusted annual rate of 4.00 million in January. Though the market witnessed a significant increase in sales, it also faced a progressive downturn for the rest of the year.

Key Data Points and Market Dynamics

Several market dynamics emerge from the current data sets: while first-time buyers accounted for 28% of sales in January, cash sales constituted 32%, underscoring a year-over-year increase. A silver lining comes from the days on market, staying above 30 days, which indicates a possible move toward a more balanced market.

The report is encouraging to some extent, linking the surge in sales to the recent lowering of mortgage rates. However, the last four weeks have seen a decline in purchase applications, a forward-looking indicator that can give insights into sales activity up to three months prior. The concern now is whether this year will echo the struggles of the previous year, with the possibility of sales slipping if mortgage rates do not reduce.

A spike towards 8% in mortgage rates is undesirable, as had been acknowledged by the Federal Reserve. Market stability now hangs in the balance with the 10-year yield, with hopes that it does not surpass the 4.34% threshold. The real estate market, consumers, and investors alike hold a collective breath, hoping to avoid a repeat of 2023's market difficulties.

housing, sales, mortgage