The good news about January home sales is that the year over year rate reached the highest they reached an all-time high, an annualized total that was a little bit higher than it was last November.

The bad news is that the serious problems facing the residential real estate economy grew even more serious during the slowest month of the year, a period when inventories traditionally replenish and prices stabilize to spark buyer demand in the coming spring market.

To wit:

• Inventories ended the month 7.1 percent lower than they were a year ago, and inventories in January 2016 were 2.2 percent lower than they were the previous January.  In fact, inventories have declined on a year-over-year basis for 20 straight months. Unsold inventory is at a 3.6-month supply at the current sales pace, unchanged from December 2016.[1]  One thing you can count on, if we have fewer homes to sell, chances are we’ll sell fewer homes.
• The combination of higher rates and higher prices led to households in over half of all states last month being able to afford less of all active inventory on the market based on their income. “Home prices have ascended far past wage growth in much of the country in recent years because not enough homeowners are selling and homebuilders have not boosted production enough to meet rising demand,” said NAR Chief Economist Lawrence Yun.[2]

January sales took an average of 44 days to close.[3]  Many, if not most, of January’s sales were pre-holiday contracts.  No doubt rising prices and rising rates, which reached 4.32% in the last month of the year,[4] motivated many buyers to act earlier rather than wait until after the new year—one more reason we may see a dip in demand in the spring.

If that’s the case, don’t break out the bubbly quite yet. However, if sales maintain the January pace in the months to come, I’ll be happy to be wrong.

 PS Today (February 27) NAR released pending home sales for January:

Insufficient supply levels led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors®.

The Pending Home Sales Index,^* a forward-looking indicator based on contract signings, decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month’s index reading is 0.4 percent above last January, it is the lowest since then.

Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”