US existing home sales post strong print in January, rising employment and incomes bode well for home sales

US existing home sales grew 0.4% m/m in January to 5.47 million units, more than consensus expectations of 5.33 million. The rise was mainly because of increase in the sales of single-family houses that grew 1% m/m to 4.48 million units.

Meanwhile, the condos/co-ops sales eased 4.75 m/m after a strong growth in December. On an annual basis, the median sales price grew 8.2%, accelerating from December's reading of 7.2%. In the single-family segment prices rose 8.3% y/y, whereas condos and co-op prices rose weakly by 7.4% y/y.

In spite of a moderate increase in the headline, January's existing home sales report is strong, which is driven by the single family segment. The increase is also encouraging given that it follows December's double digit growth.

Several factors bode well for homeownership, mainly the increasing employment and incomes that has assisted in rebounding the household formation rate and better access to credit. Borrowing costs are also likely to be low. Mortgage rates have actually dropped by 35 basis points since the beginning of the year, and should be very low throughout 2016 with the US Fed likely to raise rates only twice in 2016.

However, the tight inventory of available houses for sale is one of the major concern as it is motivating rapid increases in home prices that continue to surpass income gains.  Rising homebuilding should assist in cutting supply bottlenecks and mitigate price gains, although gradually.