US: Home Sales end 2016 on a solid note - Wells Fargo

Today, the US existing home sales report showed a gain of 0.7% to 5.61 million unit. According to analysts from Wells Fargo, November’s closings reflect contracts signed well before the post- election rise in mortgage rates, which may have pulled sales forward.

Key Quotes: 

“Sales of existing homes rose 0.7 percent in November, marking the third consecutive monthly increase. While all of the gain came in sales of condos and co-ops, which jumped 10 percent in November, sales of single-family homes remain near their highest level since February 2007. Sales are up by a huge 15.4 percent year to year, but last year’s sales were held back by the introduction of new mortgage rules, which temporarily disrupted closings.”

“The lack of existing home inventory reflects a number of structural shifts. As the population has aged, fewer people are moving, which is lessening housing turnover. Many home buyers are also suffering from rate-lock, or  some variation of it. Once they have refinanced their home at an ultra-low rate and are rapidly building equity, they are less willing to part with their current home, particularly with the paucity of homes available for sale.”

“Freddie Mac reports that the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.77 percent in November, which marked the highest rate since January. Mortgage rates have risen about a half percentage point since the presidential election, which will make the market more challenging going forward. Typically buyers would switch to adjustable rates to maintain their purchasing power or adjust the home search toward lower priced homes. Both strategies are likely to prove less effective at maintaining sales in the current environment. Fewer buyers are likely to opt for adjustable rates when interest rates are so widely expected to increase further and with the paucity of homes available for sale today, there are simply fewer lower-priced homes available.”