The headlines for existing home sales smartly improved saying "January's sales gain signals resilience among consumers even in a rising interest rate environment". Our analysis of the unadjusted data agrees.

Analyst Opinion of Existing Home Sales

This was a surprisingly good month for home sales. Based on pending home sales, this should have been a very poor month.

Econintersect Analysis

• Unadjusted sales rate of growth accelerated 5.7 % month-over-month, up 6.0 % year-over-year - sales growth rate trend accelerated using the 3 month moving average.
• Unadjusted price rate of growth accelerated 1.9 % month-over-month, up 5.2 % year-over-year - price growth rate trend accelerated using the 3 month moving average.
• The homes for sale inventory marginally grew this month, remains historically low for Januarys, and is down 7.1 % from inventory levels one year ago).

NAR reported:

• Sales up 3.3 % month-over-month, up 3.8 % year-over-year.
• Prices up 7.1 % year-over-year
• The market expected annualized sales volumes of 5.450 M to 5.630 M (consensus 5.575 million) vs the 5.69 million reported.

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The graph below presents unadjusted home sales volumes.

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Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says January's sales gain signals resilience among consumers even in a rising interest rate environment. Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home. Market challenges remain, but the housing market is off to a prosperous start as homebuyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.

Competition is likely to heat up even more heading into the spring for house hunters looking for homes in the lower- and mid-market price range. NAR and realtor.com®'s new ongoing research — the Realtors® Affordability Distribution Curve and Score — revealed that the combination of higher rates and 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."

NAR President William E. Brown cautions about another source that could possibly drag down inventory for would-be buyers in coming months. Supply and demand imbalances continue to be burdensome in many markets, and now Fannie Mae is supporting a Wall Street firm's investment in single-family rentals," he said. "This will only further hamper tight supply and put major investors in direct competition with traditional buyers. Instead, the GSEs should lower overly burdensome fees(link is external) and help qualified borrowers become homeowners."

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To remove the seasonality in home prices, here is a year-over-year graph which demonstrates a general improvement in home price rate of growth since mid-2012.

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Econintersect does a more complete analysis of home prices with the Case-Shiller analysis. The graphs above on prices use a three month rolling average of the NAR data, and show a 3.6 % year-over-year gain.

Homes today are still relatively affordable according to the NAR's Housing Affordability Index.

Unadjusted Home Affordability Index

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This affordability index measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.

Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home.

The home price situation according to the NAR:

The median existing-home price for all housing types in January was $228,900, up 7.1 percent from January 2016 ($213,700). January's price increase was the fastest since last January (8.1 percent) and marks the 59th consecutive month of year-over-year gains.

According to the NAR, all-cash sales accounted for 23 % of sales this month.

First-time buyers were 33 percent of sales in January, which is up from 32 percent both in December and a year ago. NAR's 2016 Profile of Home Buyers and Sellers — released in late 2016 — revealed that the annual share of first-time buyers was 35 percent.

All-cash sales were 23 percent of transactions in January, up from 21 percent in December but down from 26 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in January, unchanged from December and down from 17 percent a year ago. Fifty-nine percent of investors paid in cash in January.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of January rose 2.4 percent to 1.69 million existing homes available for sale, but is still 7.1 percent lower than a year ago (1.82 million) and has fallen year-over-year for 20 straight months. Unsold inventory is at a 3.6-month supply at the current sales pace (unchanged from December 2016).

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Caveats on Use of NAR Existing Home Sales Data

The National Association of Realtors (NAR) is a trade organization. Their analysis tends to understate the bad, and overstate the good. However, the raw (and unadjusted) data is released which allows a complete unbiased analysis. Econintersect analyzes using the raw data. Also note the National Association of Realtors (NAR) new methodology now has moderate back revision to the data - so it is best to look at trends, and not get too excited about each month's release.

Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).