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  Existing Home Sales Declined 0.2% in March to a 4.59 Million Annual Rate
Posted Under: Data Watch • Home Sales • Housing

 
Implications: Existing home sales declined 0.2% in March to the slowest pace since July 2012. However, this was a little above what the consensus expected and should not change anyone's impression about the economy. Existing home sales are counted at closing, and given harsh winter weather in January and February, when prospective buyers would have been placing contracts on homes, it makes sense that sales were still weak in March. Besides the weather, another reason for slower sales is a lack of inventory, which could lead some buyers to purchase a new home instead. The good news was that inventories increased by 90,000 units in March and this suggests that the pace of sales will pick up this spring, as contracts signed in March will show up in April and May sales. Expect more inventory to come onto the market in 2014 as home prices continue to move higher (median prices for existing homes are up 7.9% from a year ago). However, credit remains tight, making it hard to get a loan to buy a home. This explains why 33% of all sales in March were all-cash transactions. However, we do not believe higher mortgage rates are noticeably holding back sales. The US had a bubble in housing during 2003-05, when 30-year mortgage rates averaged 5.8%. Today they are 4.3%. We remain convinced that the underlying trend for housing remains strong. In other housing news this morning, the FHFA price index, which measures homes financed with conforming mortgages, increased 0.6% in February and is up 6.9% from a year ago. Home prices will continue to climb in the next couple of years, but not as quickly as in the past two years. On the manufacturing front, the Richmond Fed index, a measure of factory sentiment in the mid-Atlantic region, surged to +7 in April from -7 in March, a clear sign of a spring economic thaw.

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