As the National Association of Realtors reported, home sales dropped in December.
However, Capital Economics warns this should be no cause for despair.
Additionally, while cash buyers and investors continue to make up a large portion—about half of all sales—Capital Economics suggests rising prices lifting many homeowners above water will lead to increased activity from owner-occupants.
“[M]onthly changes are volatile,” the analytics firm stated Tuesday, adding that three-month averages are often more indicative of market trends and the numbers from a single month.
“On this basis, existing home sales are still rising,” Capital Economics said, also pointing out that December sales are 12.8 percent above their year-ago level.
Patrick Newport of IHS Global Insight said the most compelling numbers from NAR’s December report are the inventory numbers. At 1.82 million, total inventory reached its lowest level since since January 2001.
Single-family inventory also reached an 11-year low at 1.6 million, or 4.4 months’ supply, IHS noted.
The low inventory is causing higher prices, which “in turn, are bringing more builders into the game,” according to Newport.
Capital Economics also notes the low inventory but rationalizes, “it’s normal for supply to fall at this time of year, and after seasonal adjustment supply was probably above the two million mark.”
Regardless, the firm admits, “supply is very tight,” and prices are likely to continue to rise.
Newport advises taking the 11.5 percent rise in median price with a grain of salt as distressed sales, the mix of types of homes sold, and regional trends “can distort the headline numbers.”
“Suffice it to say, all of the well known home price indicators agree that home prices are rising nationally and in the majority of cities and states,” Newport said.
Rising prices allowed about 1.4 million homeowners to rise above water last year, and Capital Economics anticipates some of these borrowers will “begin to play more of a role in housing demand before too long.”
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