EconoFACTS

January 19, 2024 | 10:57

Existing Home Sales Unexpectedly Drop in December

Existing home sales fell 1.0% in December to an annualized pace of 3.78 million, bucking expectations for a modest 0.3% rise. Falling mortgage rates – the 30-year fixed has decreased by 81 basis points over the last two months through December – are apparently not enough to spur a rebound in home demand. The dip was broad-based with condos/co-ops dropping 7.3% after a flat reading in November and single-family sales edging down 0.3%. On a full-year basis, existing home sales (4.1 million) fell to the lowest level in nearly 30 years. Despite the modest decline, the year-ago growth rate improved to -6.2%, the smallest drop since March 2022. Nonetheless, existing home sales have decreased annually for 29 straight months.

The data on the inventory situation did not improve with total housing inventory at the end of December at 1 million units, down 11.5% from November but up 4.2% from November 2022. Unsold inventory sits at a 3.2-month supply at the current sales pace, down from 3.5 months in November but up from 2.9 months a year earlier. The drop in inventory pushed the median home price up 4.4% year-on-year to $382,600, the sixth straight month of annual price increases.

Separately, the University of Michigan’s consumer sentiment index jumped 9.1 points to 78.8. This is the largest monthly advance since 2005. The current conditions index improved 10 points to 83.3 - the highest since July 2021 – while the consumer expectations index climbed 8.5 points to 75.9. The inflation outlook continued to improve with consumers expecting prices to rise 2.9% over the next year. All in all, a solid report on the state of the consumer and inflation expectations.

Bottom Line: Although the housing market is slumping amid minimal inventory, low affordability and rising joblessness, consumers are more optimistic about the economy and inflation expectations have slipped to a three-year low, which is exactly what the Fed wants to see.

Table 1 - United States — Existing Home Sales

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics

Table 2 - United States — University of Michigan Consumer Sentiment Index

Source: BMO Economics, Haver Analytics