US home resales have fallen more than expected in December as the supply of houses on the market has dropped to levels last seen in 1999, but the housing market recovery remains intact against the backdrop of a tightening labour market.
The National Association of Realtors on Tuesday said existing home sales decreased 2.8 per cent to a seasonally adjusted annual rate of 5.49 million units in December. In addition to the lack of properties to purchase, rising home prices and mortgage rates also likely sidelined some buyers.
The drop in sales followed three straight months of increases and probably does not signal impending housing weakness, with the labour market near full employment and the economy strengthening.
“The dip in housing sales is more a sign of the lack of homes to be bought than the desire to buy homes,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “It is hard to sell homes that are not for sale.”
November’s existing sales pace was revised up to 5.65 million units, which was the highest since February 2007, from the previously reported 5.61 million units.
Economists had forecast sales declining 1.1 per cent to a 5.52 million-unit pace in December. Sales increased 3.8 per cent to 5.45 million units in 2016, the highest since 2006 when the housing market peaked.
In December, the number of homes on the market fell 10.8 per cent from November to 1.65 million units, the lowest level since December 1999.
Supply was down 6.3 per cent from a year ago and has now declined for 19 straight months on a year-on-year basis. The dearth of inventory amid rising household formation could put pressure on homebuilders to ramp up construction.
Homebuilding is currently running just above a 1.2 million-unit rate. The NAR estimates housing starts and completions should be in a 1.5 million to 1.6 million range to alleviate the chronic shortage.
“Buyers are out touring in droves, ready to pounce on new listings that fit the bill,” said Nela Richardson, chief economist at Redfin in Washington. “The only thing missing is homes for sale to satisfy demand, because there just aren’t a lot of homes available to buy right now.”
Supply could remain a headache as builders continue to complain about a shortage of skilled workers and land.
With fewer homes available for sale, house prices continued to rise in December. The median house price increased 4.0 per cent from a year ago to $US232,200.
Existing home sales fell in the Northeast, the West and the Midwest. They were unchanged in the South. At December’s sales pace, it would take 3.6 months to clear the stock of houses on the market, the fewest since January 2005.
That was down from 3.9 months in November. A six-month supply is viewed as a healthy balance between supply and demand.
With supply tightening, house prices notched their 58th consecutive month of year-on-year gains in December. House prices increased 5.2 per cent in 2016 to an average of $US233,900.
First-time buyers accounted for 32 per cent of December’s transactions, well below the 40 per cent share that economists and realtors say is needed for a robust housing market. They accounted for 32 per cent of transactions in 2016.