Existing Home Sales Slump on Weather, Supply Woes

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existing home sales
Gene J. Puskar/AP
By Lucia Mutikani

WASHINGTON -- U.S. home resales fell to an 18-month low in January as the combination of cold weather and a lack of housing stock sidelined potential buyers.

The National Association of Realtors said Friday home sales dropped 5.1 percent to an annual rate of 4.62 million units, the lowest level since July 2012. December's sales pace was unrevised at 4.87 million.

"Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception," said Lawrence Yun, NAR chief economist. "Some housing activity will be delayed until spring."

Economists polled by Reuters had expected sales to fall to a 4.68 million pace last month. Existing home sales are counted at the closing of contracts. January's sales mostly reflected contracts signed in December.

With temperatures remaining chilly in January, February sales will probably be weak.

Sales tumbled in the Northeast, South and Midwest, which were hit by snow storms and ice last month. They were down 7.3 percent in the West, an indication that other factors apart from the weather weighed down on sales.

Fundamentals in the sector have weakened somewhat. Mortgage rates have risen and the increase in house prices has far outpaced income growth, making home buying less affordable. %VIRTUAL-article-sponsoredlinks%In addition, there has been less housing stock on the market and household formation fell sharply in 2013. Home resales have declined in five of the last six months, having peaked in July.

Home sales were down 5.1 percent in January from a year-ago.

The existing home sales report added to other weak housing data such as housing starts and permits. It was also the latest indication the economy started 2014 on a weak footing.

Weak homes sales weighed on brokers' commissions in the fourth quarter, contributing to a contraction in the residential sector for the first time in nearly three years.

In January, the inventory of unsold homes on the market rose 2.2 percent from December, pushing the months' supply to 4.9. While that was up from December's 4.6 months, it remained below the 6 months that is normally considered as a healthy balance between supply and demand.

With inventory still tight, the median price for a previously owned home rose 10.7 percent from a year ago to $188,900.

Other details of the report were a bit downbeat. First-time buyers accounted for 26 percent of the transactions, the lowest share since the Realtors group started tracking the series in October 2008. A market share of 40 percent to 45 percent is considered by economists and real estate professionals as ideal.

Existing Home Sales Slump on Weather, Supply Woes
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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