Existing-home sales dropped off considerably in November to the slowest pace in 19 months, but some of the decrease was likely because of an apparent rise in closing timeframes that may have pushed some transactions into December, according to the National Association of REALTORS®. All four major regions saw sales declines in November.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 10.5 percent to a seasonally adjusted annual rate of 4.76 million in November (lowest since April 2014 at 4.75 million) from a downwardly revised 5.32 million in October. After last month’s decline (largest since July 2010 at 22.5 percent), sales are now 3.8 percent below a year ago—the first year-over-year decrease since September 2014.
Lawrence Yun, NAR chief economist, says multiple factors led to November’s sales decline, but the primary reason could be an anomaly as the industry adjusts to the new Know Before You Owe rule. “Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” he says. “However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it’s highly possible the stark sales decline wasn’t because of sudden, withering demand.”
According to Yun, although REALTORS® are adjusting accordingly to the Know Before You Owe initiative, the main takeaway so far has been the need for longer closing times. According to NAR’s REALTORS® Confidence Index, 47 percent of respondents in November reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” says Yun. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”
The median existing-home price for all housing types in November was $220,300, which is 6.3 percent above November 2014 ($207,200). November’s price increase marks the 45th consecutive month of year-over-year gains.
Total housing inventory at the end of November decreased 3.3 percent to 2.04 million existing homes available for sale, and is now 1.9 percent lower than a year ago (2.08 million). Unsold inventory is at a 5.1-month supply at the current sales pace, up from 4.8 months in October.
“REALTORS® worked hard to prepare for Know Before You Owe, and we knew there would be some near-term challenges as the industry continues to adapt,” says NAR President Tom Salomone. “Nonetheless, an early trend of longer lead times to closings is cause for concern. As REALTORS® report issues with their transactions, we will continue to work with the Consumer Financial Protection Bureau to ensure as little disruption as possible to the business of real estate.”
Properties typically stayed on the market for 54 days in November, a decrease from 57 days in October and below the 65 days in November 2014. Short sales were on the market the longest at a median of 91 days in November, while foreclosures sold in 47 days and non-distressed homes took 54 days. Thirty-seven percent of homes sold in November were on the market for less than a month.
The percent share of first-time buyers was at 30 percent in November, down from 31 percent both in October and a year ago. Despite first-time buyers’ continued absence from the market, NAR’s inaugural quarterly Housing Opportunities and Market Experience survey—released earlier this month—found that an overwhelming majority of current renters who are 34 years of age or younger want to own a home in the future (94 percent). The top reason given by renters for not currently owning was the inability to afford to buy.
“The abrupt change in the pace of sales is out of sync with demand indicators on realtor.com and point to other likely factors causing a unique short-term disruption to closings, which the sales data represent,” says realtor.com Chief Economist Jonathan Smoke. The good news is that we should see the closing disruptions dissipate over December and January as the delayed closings turn into an increase in sales for subsequent months.
The National Association of Realtors’ (NAR) November REALTORS® Confidence Index highlighted the disruption caused by the Know Before You Owe rule implemented in October by the Consumer Financial Protection Bureau as a likely culprit for the stark decline. According to NAR, 47 percent of respondents in November reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
Other than the normal seasonal decline brought upon by the holidays and weather, demand appeared strong in November, in line with the year-over-year strength we have observed each month in 2015. In addition, tight supply continues to be the norm with inventory down 2 percent relative to last year. Overall supply remains very tight, now at an estimated 5.1 months. This is the 39th straight month of supply under 6 months. Even with the disruption in closings, the non-seasonally adjusted estimated number of existing home sales in November was flat to last November. Due to the tight supply, the year-over-year price appreciation remains above average at 6 percent.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage hovered below 4 percent for the fourth consecutive month but increased in November to 3.94 from 3.80 percent in October. A year ago, the average commitment rate was 4.00 percent.
“The Federal Reserve’s decision this month to raise short-term rates is the first of many increases over the next couple of years,” says Yun. “Although this first move will likely have minimal impact on mortgage rates, additional hikes will push borrowing costs to around 4.50 percent by the end of next year. With home prices expected to continue rising, wages and new home construction need to start increasing substantially to preserve affordability.”
Matching the highest share since January, all-cash sales rose to 27 percent of transactions in November (24 percent in October) and are also up from 25 percent a year ago. Individual investors, who account for many cash sales, purchased 16 percent of homes in November (also the highest since January), up both from 13 percent in October and 15 percent a year ago. Sixty-four percent of investors paid cash in November.
Distressed sales—foreclosures and short sales—climbed to 9 percent in November, up from 6 percent in October but unchanged from a year ago. Seven percent of November sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 15 percent below market value in November (18 percent in October), while short sales were discounted 15 percent (8 percent in October).
Single-family and Condo/Co-op Sales
Single-family home sales dropped 12.1 percent to a seasonally adjusted annual rate of 4.15 million in November from 4.72 million in October, and are now 4.6 percent lower than the 4.35 million pace a year ago. The median existing single-family home price was $221,600 in November, up 6.6 percent from November 2014.
Existing condominium and co-op sales increased 1.7 percent to a seasonally adjusted annual rate of 610,000 units in November from 600,000 in October, and are now 1.7 percent above November 2014 (600,000 units). The median existing condo price was $211,400 in November, which is 4.7 percent above a year ago.
November existing-home sales in the Northeast declined 9.2 percent to an annual rate of 690,000, but are still 1.5 percent above a year ago. The median price in the Northeast was $254,800, which is 3.2 percent above November 2014.
In the Midwest, existing-home sales descended 15.4 percent to an annual rate of 1.10 million in November, and are now 2.7 percent below November 2014. The median price in the Midwest was $169,300, up 5.3 percent from a year ago.
Existing-home sales in the South decreased 6.2 percent to an annual rate of 1.98 million in November, and are now 5.7 percent below November 2014. The median price in the South was $189,400, up 6.3 percent from a year ago.
Existing-home sales in the West dropped 13.9 percent to an annual rate of 990,000 in November, and are now 4.8 percent lower than a year ago. The median price in the West was $319,700, which is 8.3 percent above November 2014.
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