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The pace of existing home sale activity dropped quite sharply in January, falling over 24 percent from the month prior.

Home sales typically drop between January and February, but not to this extent.  In the four years from 2006 through 2009, for example, the average monthly sales decline for January was a bit over 9 percent.

Inventory has been relatively stable over the past few months, so it seems that the decline in sales was driven more by demand than supply.  I would guess that the dropoff in demand relates to the perceived expiration of the homebuyer tax credit in November.  (I say “perceived” because the credit did not in fact expire, but was renewed for another six months).  Perhaps the initial frenzy to close in November spilled into December once the credit was extended, with the market finally taking a breather once that final surge of activity had worked its way through the system.

That’s not the most satisfying explanation in the world but it’s the most plausible one that springs immediately to mind.  Have a better theory? Feel free to leave a comment if so.

— RICH TOSCANO

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