Economists expected a small bounce in existing home sales. Once again, economists expectations weren't met.

Economists at Econoday expected a bounce to 5.04 million sales at a seasonally-Adjusted annualized rate (SAAR). Instead, sales fell to 4.94 million from a revised 5.00 million units.

The biggest disappointment of the 2018 economy was the nation's housing sector and the first definitive indication on 2019 is not favorable. Existing home sales fell 1.2 percent in January to a 4.940 million annualized rate that is near the low end of Econoday's consensus range. Sagging permits for single-family homes were cited in Wednesday's FOMC minutes and resales in this report are also down, 1.8 percent lower to a 4.370 million rate. Condo resales, up 3.6 percent at a 570,000 rate, helped offset some of the month's weakness.

January resales also appear to have been helped by price discounting as the median fell 2.8 percent to $247,500. Year-on-year, the median is still in the plus column at 2.8 percent but given where year-on-year sales are, at minus 8.5 percent, further discounting may be in store.

One plus in the report is a very welcome 3.9 percent rise in resales on the market, at 1.590 million. Relative to sales, supply moved up to 3.9 months from December's 3.7 and compares well with only 3.4 months in December 2017.

The West is often a driving force for the housing market and trouble may be building. Like other indications in other housing data especially for home prices, the West right now looks very soft. Resales in the region fell 2.9 percent in the month to a 1.000 million rate which is down 13.8 percent from last year. The South, which is the nation's largest housing region, is also softening with resales down 1.0 percent in the month at 2.080 million and down 8.4 percent year-on-year.

The yearly median price gain of 2.8 percent marks the slowest annual result since 2012, which is no surprise given clear slumps underway in Case-Shiller and FHFA price data. Trouble in housing has only been a minor theme in the Fed's economic assessment though more reports like today's could raise their level of concern.

Bright Spots

Econoday can find bright spots on flea-infested rugs. Sales were down but they were helped by falling prices?

Cyclical Low

NAR spokesman Lawrence Yun was busy yapping away with the usual nonsense.

Lawrence Yun, NAR’s chief economist, says last month’s home sales of 4.94 million were the lowest since November 2015, but that he does not expect the numbers to decline further going forward. “Existing home sales in January were weak compared to historical norms; however, they are likely to have reached a cyclical low. Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months.”

There is no evidence to support this is a cyclical low in housing.

People still cannot afford houses. Period.

Rising Inventory

While total inventory grew (on a year-over-year basis) for the sixth straight month, Yun says the market is still suffering from an inventory shortage. “In particular, the lower end of the market is experiencing a greater shortage, and more home construction is needed,” says Yun.

The problem, Mr. Yun, is that builders cannot afford to build homes at prices people can afford.

If builders could build more houses that people would buy, they would do just that.