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Home sales dipped in December, but new inventory could be on the way

Huge increase in new homes for sale driven by pending construction starts

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The housing market has long since reached its pre-crisis peaks, but a pair of reports this week suggests that housing market activity is starting to slow. Both new and existing monthly home sales fell in December, with new home sales falling dramatically by 9.3 percent to 625,000, while existing home sales fell by 3.6 percent, to 5.57 units. Both numbers are seasonally adjusted.

For new home sales, the precipitous drop was accompanies by downward revisions of the numbers from October and November as well. However, the December numbers were 14.1 percent higher compared to December of 2016. The new home-sales data was provided by the U.S. Census Bureau.

According to Zillow, 2017, as a whole, saw the lowest number of new homes sold since 1992, not counting the housing bust and subsequent recovery.

“[The new home-sales] numbers are not the way we would have liked to see 2017 end for the new home sales market,” Zillow’s Aaron Terrazas said. “[2017] has proven to be a two-step-forward, one-step-back process in getting building activity to where it really needs to be. Big gains in one month are often revised down in the next, and progress has been frustratingly incremental instead of really breaking through.”

The one bright spot to new home sales was that the level of inventory increased to 295,000 units, its highest overall number since 2006. Inventory shortages have been a key driver of record home prices. The one caveat is that the 3.9 percent increase was mostly driven by homes that are not yet under construction, so it will likely be awhile before the effect reaches potential home buyers.

Existing home sales for the year were up 1.1 percent from 2016, which was a slower pace of growth from 2016 (3.8 percent) and 2015 (6.5 percent), driven by a 10.2 percent decrease in available inventory. The existing home sales data was provided by the National Association of Realtors.

Half of the nationwide decline in existing home sales can be attributed to a whopping 22.2 percent decline in condo and co-op sales in the West, which also saw a 32.1 percent drop in homes priced at less than $100,000 and a 21.5 percent drop in homes priced from $100,000 to $250,000. The drop in sales over those price ranges extended across every region in the United States, although it was most pronounced in the West.

One bright spot for existing home sales is the high-end market. Homes priced at more than $1 million rose 23.2 percent in the Midwest and 18.1 percent in the South.

Existing home sales for December 2017

Region $0 to $100k $100k to $250k $250k to $500k $500k to $750k $750k to $1M $1M+
Region $0 to $100k $100k to $250k $250k to $500k $500k to $750k $750k to $1M $1M+
Northeast -13.30% -7.70% -4.50% 0.70% 12.60% 3.30%
Midwest -12.30% -2.10% 10.50% 9.00% 7.30% 23.20%
South -19.90% 0.30% 14.50% 14.40% 12.10% 18.10%
West -32.10% -21.50% -4.00% 1.10% -6.90% 14.20%
U.S. -16.00% -4.10% 5.10% 5.40% 3.20% 12.90%
National Association of Realtors