Economists expected last year’s strength to continue. It petered out in December and the floor fell out in January.

The Econoday consensus for existing home sales was 5.65 million units. Instead, sales took a dive to 5.35 million units. This was the second consecutive monthly decline.

An uptick in supply and lower prices failed to boost existing home sales in January, which unexpectedly fell 3.2 percent versus the marginally downward revised December level to an annualized rate of 5.380 million, well below the consensus estimate of 5.650 million and the lowest rate for January since 1999. Year-on-year, home resales were down 4.8 percent, the largest decline since August 2014.

Though lack of supply continued to hamper sales volumes, supply in January’s market increased 4.1 percent from December’s level to 1.520 million homes. While this is down 9.5 percent from January last year, inventory rose from December’s 3.2 months, a 19-year low, to 3.4 months. Still, lack of choice remains a serious problem for the resale market.

But prices softened considerably in January, which won’t be drawing new homes onto the market. The median selling price fell by a sharp 2.4 percent to $240,500 for a year-on-year increase of 5.8 percent.

Sales were down compared to December in all four regions of the country, with declines most pronounced in the Midwest, down 6.0 percent, and the West, down 5.0 percent.

While existing home sales tend to be volatile, the softness in today’s report may cast some doubt on housing strength indicated by last week’s report of a surge in permits to the best level of the expansion.

Inventory Still a Big Issue

Mortgage News Daily writes Existing Home Sales Decline, Inventory Still a Big Issue.

The National Association of Realtors® (NAR) said existing homes sold during the month at a seasonally adjusted rate of 5.38 million, representing a year-over-year decline of 4.8 percent. It was the slowest sales pace since last September and the largest annual loss since a 5.5 percent decline in August 2014. December sales were revised down from 5.570 million to 5.56 million. The months sales results were broad-based. All four U.S. regions saw both monthly and annual declines.

Lawrence Yun, NAR chief economist, says January’s retreat in closings highlights the housing market’s glaring inventory shortage at the start of 2018. “The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month,” he said. “While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January’s pace. It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”

The median existing-home price for all housing types in January was $240,500, up 5.8 percent from the January 2017 median of $227,300. It was the 71st consecutive annual gain. The median existing single-family home price rose 5.7 percent to $241,700 and condo prices were up 7.1 percent to a median of $231,600.

Total inventories did grow during the month, increasing by 4.1 percent to 1.52 million existing homes available for sale. That number is still 9.5 percent lower than a year ago, marking the 32nd straight month the inventory has shrunk on an annual basis. Unsold inventory is estimated at a 3.4-month supply at the current rate of sales. “Another month of solid price gains underlines this ongoing trend of strong demand and weak supply.