December Existing Home Sales: Back to the Grind

• December existing home sales dropped 6.4 percent from November, to 4.99 million units at a seasonally adjusted annual rate, according to the National Association of Realtors. It was the weakest month in more than three years (November 2015).
• Sales were down 10.3 percent from December 2017 - which had a surge of closings in anticipation of changes to federal tax laws that diminished some traditional and longstanding homeownership tax advantages.
• The median existing home sale price in December was $253,600, up 2.9 percent from December 2017. December's price increase marks the 82nd straight month of year-over-year gains.
• Total inventory fell 10.9 percent from November (non-seasonally adjusted), to 1.55 million units for sale, but was up 6.1 percent from a year ago.

Existing home sales plummeted in December to their weakest level in more than three years, retreating from a surprisingly strong November and returning to the pattern of disappointing sales that dominated the second half of 2018. Mortgage rates touched seven-year highs in November. The weight of those high rates is reflected in December sales data, because it typically takes at least 30 days from the time an offer is written to the time the sale closes.

On top of mortgage rate headwinds, the stock market took a wild ride late last year, and the uncertainty associated with the partial federal government shutdown – not to mention closings delayed from shuttered federal agencies such as the Department of Agriculture's rural lending arm – contributed to the slow numbers. While December sales were weak, the drop appears exaggerated compared to December 2017, which saw a surge in closings in anticipation of tax reforms that limited some historic tax benefits of homeownership.

While sales may have ended 2018 on a soft note, market headwinds have faded somewhat in early 2019. Mortgage rates are back down, inventory is on the rise, and more listings are carrying price cuts after a slow autumn. The partial federal government shutdown could delay closings and soften local economic conditions in areas heavily dependent on federal jobs, but once the political impasse is eventually resolved, the result is likely to be softer economic data and, as a result, lower rates. These forces could prove attractive for the handful of fence-sitters still remaining on the edges of the market.

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