December US existing home sales edged up 1.0% to 4.87m (saar) from a (downwardly revised) November figure, slightly below the consensus. While this concludes the best year for sales since 2006, the last two months of the year were rather weak. This is no surprise, given that mortgage rates have risen substantially during 2013, which is now feeding through in sales figures.
Supply remains tight on the housing market. The inventory of homes for sale represents 5.0 months of supply, still well below the long-term average supply of around 7 months, keeping pressure on prices for now.
But we expect sales to remain weak in the coming months, as higher mortgage rates continue to take their toll. That said, the housing slowdown should remain muted. Mortgage rates have not risen further since the Fed announced in December that it would start tapering. The Fed has successfully decoupled tapering expectations from rate hike expectations – for now at least. And indeed the number of mortgage applications for purchases, after having fallen substantially during 2013, is stabilising in the past two weeks. While it is too early to declare this a signal rather than noise, it is a hopeful sign and we will be closely monitoring both rates and mortgage applications in the coming weeks to see where the housing market is going.