Existing home sales collapsed 4.9% in January to their lowest rate in nine months, falling well below analyst expectations, led by a massive drop in western region, according to the National Association of Realtors.

All major regions experienced declines in January, with the Northeast and West seeing the largest.   

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9% to a seasonally adjusted annual rate of 4.82 million in January from an upwardly-revised 5.07 million in December.

“January’s drop in existing home sales is a bit concerning,” said Bill Banfield, vice president at Quicken Loans. “Economic indicators and stubbornly-low interest rates would lead most to expect improvement, yet recent housing reports have indicated the opposite. Inventory is a number I’ll be watching in the coming months as it has the power to help existing sales bounce back.”

Lawrence Yun, NAR chief economist, says the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country.

“January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” he said. “Realtors are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”

Total housing inventory at the end of January increased 0.5% to 1.87 million existing homes available for sale, but is 0.5% lower than a year ago. Unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December.

The slowdown in mortgage purchase applications is also weighing on analysts. Mortgage purchase apps have faltered, and that limits upside risk for mortgage rates, according to the analyst team lead by Chris Flanagan at Bank of America/Merrill Lynch.

This last week's sharp drop in the Mortgage Bankers Association purchase index was reminiscent of the early 2014 drop. Remarkably, purchase application volume is at the same level of early 2014, even though mortgage rates are more than 50 basis points lower.

The median existing-home price for all housing types in January was $199,600, which is 6.2% above January 2014. This marks the 35th consecutive month of year-over-year price gains.

“Although sales cooled in January, home prices continued solid year-over-year growth,” adds Yun. “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.”  

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage in January fell to 3.67%, its lowest level since May 2013 (3.54%), and down from 3.86% in December.

The average annual rate was 4.17% in 2014.  The percent share of first-time buyers declined to 28% in January, the lowest since June 2014 (also 28%) and down from 29% in December.

All-cash sales were 27% of transactions in January, up from 26% in December but down from 33% in January of last year. Individual investors, who account for many cash sales, purchased 17% of homes in January, unchanged from last month and below January 2014 (20%).

Distressed sales – foreclosures and short sales – were 11% of sales in January, unchanged from last month but down from 15% a year ago. Eight% of January sales were foreclosures and 3% were short sales. Foreclosures sold for an average discount of 15% below market value in January (unchanged from December), while short sales were discounted 12% (also unchanged from last month).

January existing-home sales in the Northeast fell 6.0% to an annual rate of 630,000, but are 3.3% above a year ago. The median price in the Northeast was $247,800, which is 2.7% above a year ago.

In the Midwest, existing-home sales declined 2.7% to an annual level of 1.08 million in January, but are still 0.9% above January 2014. The median price in the Midwest was $151,300, up 8.2% from a year ago.

Existing-home sales in the South decreased 4.6% to an annual rate of 2.07 million in January, but are still 5.6% above January 2014. The median price in the South was $171,900, up 7.4% from a year ago.

Existing-home sales in the West dropped 7.1% to an annual rate of 1.04 million in January, but are still 1% above a year ago. The median price in the West was $291,800, which is 7.2% above January 2014.