Lower than normal sales for this time of the year due in part to the winter’s storms are raising concerns about the recovery and lowering lenders’ expectations for 2014 originations.  But they may also be having a beneficial side effect.  Fewer sales are taking some of the pressure off of low inventories that are in the process of rebuilding for the spring buying season.

Existing-home sales fell in January to the lowest level in a year-and-a-half, but ongoing inventory shortages continue to lift prices in much of the U.S., according to the National Association of Realtors. Total existing-home sales dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January from 4.87 million in December, and are also 5.1 percent below the 4.87 million-unit pace in January 2013. Last month’s level of activity was the slowest since July 2012, when it stood at 4.59 million.

Lawrence Yun, NAR chief economist, blamed the sales deficit on the weather.  “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception,” he said.   NAR sees the short-term sales outlook as weak, with the first quarter existing home sales figures to be down by about 5 to 8 percent from one year earlier.

With fewer sales than a year ago, year-over-year inventory comparisons are looking better.  As of today, the Department of Numbers reports inventories are 5.5 percent above last year’s record low levels.  DataQuest reports sales through March 13 are down 3.5 percent from 2013 in its 99 MLSs.

Slower sales have some of the nation’s largest banks reporting huge drops in residential mortgage originations. Both Wells Fargo and JP Morgan Chase saw originations plummet in the fourth quarter of 2013, down 60 percent and 54 percent respectively from a year ago.

Barely an hour after the two banks reported their quarterly earnings, the Mortgage Bankers Association lowered its mortgage origination forecast for 2014 by $57 billion to $1.12 trillion for the year.

Lower levels of sales are helping inventories recover.  Realtor.com’s larger database of 1.6 million listings reported inventories were 10.14 percent above 2014 levels by the end of February and had increased 4.26 percent since January.  (See Sellers are Listing Despite February Freezes).

Low inventories have contributed to the sales plunge.  As they grow, they may also improve sales levels.  “Even though inventory losses have been shrinking, low inventories in many metro areas had a negative impact on sales. Even at the rate of February sales, the corresponding Months’ Supply of inventory of 5.1 isn’t significantly below the 6.0 level of a market balanced between buyers and sellers. When measured on a year-to-year basis, February became the 11th consecutive month with fewer inventory losses than the previous month,’ said RE/MAX in its monthly market report.

RE/MAX confirmed that inventories continued to improve in February.  “The inventory of homes for sale in February was just 2.4 percent less than January and 9.8 percent less than last February, when the year-to-year inventory loss was 29.2 percent. At the current rate of sales, there is a 5.1 Months’ Supply of inventory. A supply of 6.0 is considered balanced,” RE/MAX said.

Many observers view the sales decline primarily as a result of bad weather that will quickly improve with spring tine.  “Adverse weather in recent weeks reportedly delayed closings in many areas.  Despite the dip in December and January housing sales, we believe that the U.S. housing market recovery is on solid ground and likely to continue in the longer term—based on the following fundamentals,” said Wells Fargo in its February U.S. Housing Market Outlook.