A Big Chill for Existing Home Sales in January

The U.S. housing sector encountered another cold front on the road to recovery, as existing home sales tumbled 7.2% to a 5.05 million-unit annualized rate in January, the National Association of Realtors announced Friday.

A Bloomberg News economists' survey had expected the measure to rise to a 5.50 million annualized rate, after hitting 5.45 million in December.

However, on a year-over-year basis, existing home sales are still up 11.5% from the 4.53 million rate recorded in January 2009. But investors should keep in mind that the comparison is made against a very low base, which makes it easier to achieve higher monthly sales gains.

The home inventory story was mixed in January. Existing homes for sale actually fell 0.5%, but because of the lower sales pace that translates to an increase in supply, which rose to a 7.8-months worth of homes, up from December's 7.2-month supply and November's 6.5-month supply. Economists say a healthy, normal market has a three- to five-month supply of homes available for sale.

Sales Could Pick Up

Lawrence Yun, NAR chief economist, said although the existing-home sales pace has fallen this winter, he expects it to rebound with the expanded federal tax credit for homebuyers.

"Activity should be picking up strongly in late spring as buyers take advantage of the tax credit, which is critical to absorb distressed properties reaching the market and to continually chip away at inventory," Yun said in a statement. "With a downtrend in the number of homes on the market, especially in the lower price ranges, values are beginning to firm but with great variance around the country."

Congress extended and expanded the home-purchase tax credit -- $8,000 for first-time buyers or $6,500 for current owners -- and buyers now have until April 30, 2010, to sign a purchase contract to take advantage of the incentive.

In January, the U.S. median home price for all types of housing was $164,700, unchanged from January 2009. The median existing single-family home price was $163,600, down 0.4% from January 2009. And the median existing condominium price was $172,400, a 1.4% increase from January 2009.

No Area Saw Sales Increase

By region, January existing home sales decreased 10.9% in the Northeast, but the median price rose 8.8% to $245,300 compared to a year ago. Sales fell 6.9% in the Midwest, where the median price dipped 1% to $130,300. In the South, sales sank 7.4%, with the median price edging 2% lower to $140,200. In the West, sales declined 5.2%, with the median price falling 5.8% to $203,000.

Economists and market analysts closely follow the monthly existing-home sales statistic because previously owned homes account for the bulk of U.S. home sales. Moreover, when homes are sold, the new owners tend to buy durable goods and big-ticket items, which is good news for the economy and bullish for U.S. stock markets.

Obviously, January was another disappointing month for existing-home sales, and it's becoming increasingly clear that the sector is depending on the homebuyer tax credit to stimulate demand. Longer term, housing needs higher household wealth to maintain adequate sales demand -- which, of course, underscores the importance of U.S. job growth.