Existing Home Sales Increased 3.3% in January
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Implications:  Existing homes sales started off 2017 on a strong note, coming in at the fastest sales pace since 2007.  Sales of previously-owned homes rose 3.3% in January to a 5.69 million annual rate, beating the forecast of every economics group surveyed by Bloomberg, and are now up 3.8% from a year ago.  Home sales are volatile from month to month but we expect the general upward trend of the past several years to keep going.  That being said, tight supply and rising prices remain headwinds.  Remarkably, sales climbed to their fastest pace in nearly a decade even though inventories remain very low.  In fact, inventories have now fallen on a year-over-year basis for 20 consecutive months.  The months' supply of existing homes – how long it would take to sell the current inventory at the most recent sales pace – was only 3.6 months in January.  According to the NAR, anything less than 5.0 months is considered tight supply.  Meanwhile, growing demand for housing has driven up median prices, which are now up 7.1% from a year ago. While this may temporarily price some lower-end buyers out of the market, it should ultimately help alleviate some of the supply constraints as "on the fence" sellers take advantage of higher prices and trade-up or trade-down to a new home.  Despite the recent thaw in the lending market, a bigger problem for lower-end buyers may be gaining access to mortgages.  Sales of homes in the 0-$100K range, which represented 13.9% of total sales in January, are the only price bracket where sales are down from a year ago.  Although some analysts may be concerned about the impact of higher mortgage rates, it's important to recognize that rates are still low by historical standards, incomes are growing, and the appetite for homeownership is eventually going to move higher again.

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Posted on Wednesday, February 22, 2017 @ 11:41 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.