Existing Home Sales Decline Slightly; Condo Sales Drop

MBA (2/26/2008 ) Velz, Orawin
Total existing home sales edged down 0.4 percent in January to a seasonally-adjusted annualized rate of 4.89 million, as the drop in condo sales outweighed the small increase in single-family home sales. This is the sixth consecutive monthly decline.
Sales of single-family homes rose 0.4 percent—the first increase in 11 months—while condo sales dropped 6.5 percent. January’s pace of total sales is the weakest in its nine-year history. From a year ago, sales of single-family homes were down 24.4 percent, compared with a decline of 30.2 percent for condo sales. Single-family sales have declined 31.5 percent since their peak in September 2005. Condo sales have been down 40.9 percent from their June 2005 peak.

Sales dropped in three regions: 3.6 percent in the Northeast; 0.5 percent in the South and 2.1 percent in the West. Sales rose 3.5 percent in the Midwest.

Inventories continued to rise in January. The number of total homes available for sale increased 5.5 percent from December. (The data are not seasonally-adjusted.) From a year ago, inventory was up 18.4 percent. The drop in the sales pace and a considerable increase in inventory pushed up the months’ supply (or the inventory-sales ratio) to 10.3 months from 9.7 months in December. The months’ supply for single-family homes was 10.1 months, compared with 6.5 months a year ago. The months’ supply for condos was 11.8 months, rising from 7.4 months in January 2007.

Elevated months’ supply continued to put downward pressure on home prices. The median price for single-family existing homes fell 5.1 percent in January from a year ago. This is the 18th consecutive month of year-over-year drop in prices. The median price for condos fell 1.0 percent from last January, the third consecutive monthly drop.

Despite the decline in home sales, the financial markets took it as better news than expected. The National Association of Realtors reported earlier that the Pending Home Sales Index fell 1.5 percent in December, following a 3.0 percent decline in November. The index is based on signed contracts for existing single-family homes, condos and co-ops. It is a leading indicator of NAR’s existing home sales, which are based on closing, as the signed contract for the purchase of a home generally precedes its closing by one to two months.

Large declines in pending home sales in November and December suggested soft existing home sales in January and February. The small decline in total existing home sales in January, with rising detached single-family home sales for the first in almost a year, helped boost the stock market, causing a decline in demand in the Treasury market.

Stocks also rose after Standard & Poor's kept AAA credit ratings on bond insurers MBIA Inc. and Ambac Financial Group Inc., while demand contracted further in the Treasury market The yield on 10-year Treasuries rose 10 basis points to 3.90 percent by mid-Monday afternoon. Fed funds futures indicated about a 95 percent probability that the Federal Open Market Committee will cut the target rate by 50 basis points to 2.5 percent at its March 18 meeting.