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Existing Home Sales Were Flat in January: Here’s Why

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Existing home sales flat in January

Once a month, the NAR (National Association of Realtors) reports existing home sales figures. The seasonally adjusted numbers relate to completed transactions in single-family homes, condominiums, townhouses, and co-ops.

The report includes data points such as existing home sales, inventory of houses for sale, median house prices, mortgage rates, and median times on the market. In January, existing home sales were an annualized 5.5 million, more or less flat with December. On a YoY (year-over-year) basis, they’re up 13%. January’s decline was largely due to new regulations from the Consumer Financial Protection Bureau, which caused delays in closings.

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Restricted supply

At the end of January, there were 1.8 million existing homes for sale. This represents a four-month supply. A level of 6 to 6.5 months means a balanced market. Days on the market rose to 64 days from 58 days in December.

First-time homebuyers accounted for 32% of sales in January, flat with December. Builders such as PulteGroup (PHM) and D.R. Horton (DHI) are particularly exposed to first-time homebuyers.

Prices rose in the mid-single-digit range

The median sale price for an existing home in December was $213,800, up 8.2% on a YoY basis.

Of course, income growth has been tough to come by, which is again stretching the historical relationship between wages and home prices. The ratio of median home prices to median income ratio is 3.9x, well above the historical range of 3.2x to 3.6x.

Homebuilders are still holding back

Fourth-quarter earnings are largely finished, and most builders did well. Deliveries remained somewhat flattish on a unit basis, and revenue growth is coming from price increases. For the most part, builders reported declining gross margins, which means buyers are getting more price-conscious and builders must promote more in order to get buyers to step up.

Builders have also started allocating resources to multifamily construction. This is especially true for Toll Brothers (TOL), which is concentrating on luxury urban apartments. Region matters as well, as Lennar’s (LEN) numbers show.

Investors who want to gain exposure to the entire homebuilding sector should look at the SPDR S&P Homebuilders ETF (XHB).

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