The National Association of Realtors said Monday that sales of existing homes fell 6.1 per cent to a seasonally adjusted annual rate of 4.93 million. That was down from a revised annual pace of 5.26 million in October. Over the past 12 months, sales have risen 2.1 per cent.
The combination of higher home prices and relatively stagnant incomes has reduced affordability and restrained buying. A recent decline in mortgage rates has yet to lure more buyers into the market. At the same time, fewer distressed properties and bargains, which tend to attract investors, are coming onto the market.
The Realtors estimate that 2014 sales will end up below 2013 levels. Sales have slumped much of this year after a three-year rally that followed the recession and the implosion of the housing market. Harsh winter weather crippled home buying at the start of 2014. Lower affordability, resulting from tight credit, rising home prices and essentially flat incomes, held back sales for the rest of the year.
The Realtors have estimated that 4.94 million existing homes will be sold this year, down 3 per cent from 5.09 million in 2013. Analysts say sales of roughly 5.5 million existing homes are common in a healthy real estate market.
The median price rose 5 per cent over the past 12 months to $205,300. That's a positive for owners looking to sell, though it creates an additional challenge for would-be buyers.
The share of first-time buyers climbed to 31 per cent last month from a recent average of 29 per cent. Still, that's well below the 40 per cent share that has been historically common. The modest percentage of first-time buyers is a sign that affordability remains an obstacle for many who would like to purchase but lack the savings or credit record to do so.
November sales fell in all four major geographic regions: Northeast, Midwest, South and West. Buying activity fell over the past 12 months for homes worth less than $250,000.
A sudden blast of cold weather and snowstorms at the end of November might have cut into sales, noted Ian Shepherdson, chief economist at Pantheon Macroeconomics. This November was the coldest since 2000, contributing to the slowest annualized sales pace since May.
The supply of homes for sale also fell from October. There were 2.09 million homes listed for sale in November, down 6.7 per cent from the prior month.
Some of the weakness in sales has resulted from a healthier market. Just 9 per cent of sales last month were due to foreclosures and short sales, compared with 14 per cent last year. The share of purchases by investors was 15 per cent in November, compared with 19 per cent 12 months ago. This indicates that the market continues to recover from the housing bust, despite the absence of sales growth.
There are signs that sales may improve in 2015. Mortgage rates have fallen sharply in the past few weeks, which should make homes more affordable. The average rate for a 30-year fixed mortgage dropped last week to 3.8 per cent, from 3.93 per cent the previous week. That was the lowest level since May 2013.
Rates have fallen as investors have plowed their money into 10-year U.S. Treasury notes, after being spooked by plummeting oil prices and signs of slowing growth overseas that make lower risk investments more attractive.
At the same time, consistent job growth has lowered the unemployment rate to 5.8 per cent from 7 per cent 12 months ago. Steady hiring should eventually boost pay at a pace meaningfully above inflation, which would help boost home sales.
Sales may also pick up as the housing market continues to heal from its boom-and-bust last decade. Real estate data provider Zillow said last week that the proportion of U.S. homeowners with mortgages who are "under water" — meaning they owe more than their house is worth — has fallen by almost half in the past two years.
Rising prices and foreclosures have reduced that figure. As more homeowners gain equity in their homes, they are more likely to list their homes for sale, keeping home prices in check and spurring more sales.
Stan Humphries, Zillow's chief economist, forecasts that sales of existing homes will rise to 5.2 million next year from just under 5 million in 2014.