Market Recap: FHFA Index Appreciates, Existing Home Sales and New Home Sales Drop

Blog posted On January 26, 2018

Mortgage rates continued their upward trend this week.  Based on this week’s housing reports, activity slowed down in December.  Cold winter weather across the country limited construction and stalled sales.  The Federal Housing Finance Agency (FHFA) house price index appreciated, and existing home sales and new home sales each declined.

The FHFA house price index tracks the changes in the values of homes financed through conventional mortgages backed by Fannie Mae and Freddie Mac.  Though this sample of data is smaller than the Case-Shiller home price index, these price fluctuations are used to evaluate home price appreciation trends.  In November, the FHFA house price index appreciated 0.4% month-over-month and 6.5% year-over-year.  Seven out of nine divisions posted gainful numbers month-over-month, led by appreciation in the West North Central and the South Atlantic.  Only the East South Central and New England divisions depreciated.  Year-over-year all divisions were positive. 

Existing home sales, or resales, make up the majority of real estate transactions.  After hitting the best sales pace since February 2017 in November, existing home sales fell unexpectedly in December, down 3.6% month-over-month to a seasonally adjusted annual rate of 5.57 million.  All four regions declined.  The National Association of Realtors (NAR) attributes the decline to rising mortgage rates and home prices, impacting all demographics especially first-time home buyers. 

New home sales, the sales of newly constructed homes, also disappointed in December, down 9.3% to a seasonally adjusted annual rate of 625,000 units, marking the largest decrease in 1 ½ years.  Construction activity was hurt by unseasonably cold winter weather limiting the ability to complete projects.  The construction industry has faced difficulty with hiring skilled workers and keeping up with buyer demand.  This lack of available housing inventory is driving home prices up and creating a competitive market.

Next week, the Federal Open Market Committee will hold its first monetary policy meeting of 2018.  This will be the final meeting with Janet Yellen as Federal Reserve Chair, on Tuesday Jerome Powell was confirmed as Federal Reserve Chair and will take over the role in February. 

Sources: Bloomberg, Builder, CNBC, CNBC, Mortgage News Daily