Existing-Home Sales Spike as Bargains Glut Market
Tuesday, January 27, 2009
Homes sales surged unexpectedly last month, fueled by record-setting price declines in one of the weakest housing markets in 20 years.
Bargain hunters are making their way through the backlog of homes, but the market remains weak, analysts said. The recession is weighing on potential buyers, making a market recovery -- or even stabilization -- unlikely soon, the analysts said.
Existing-home sales climbed 6.5 percent to a seasonally adjusted annual rate of 4.74 million in December, according to the National Association of Realtors. That was better than analysts expected. Sales fell 3.5 percent compared with December 2007.
These "are steps in the right direction, but the market is still far from normal, balanced conditions," said Lawrence Yun, NAR's chief economist.
The glut of foreclosed homes has pushed down prices, and distress sales now make up about half the market. Median home prices fell to $175,400 in December, down 15.3 percent compared with the same period a year earlier.
The regions of the country hardest hit by the housing downturn, including California and Nevada, are seeing the biggest price declines, thus fueling the surge in sales, economists said. In December, sales in the West outpaced the rest of the country, surging 13.6 percent, but prices also fell the fastest, 31.5 percent, compared with last year.
"I think Americans love a bargain and I think that is what we saw last month," said Mike Larson, housing analyst for Weiss Research. "The real question is whether that momentum can be sustained, especially since almost every day you hear about more layoffs. If the jobless rate keeps going up, that is going to trump any impact of lower prices."
During 2008, the number of homes sold tumbled 13.1 percent, to 4.91 million, compared with 2007, according to the Realtor association data. That is the lowest volume of sales since 1997 and the biggest yearly drop since 1989. Median prices fell 9.3 percent in 2008 to $198,600 -- the biggest yearly decline on record and likely since the Great Depression, according to the association. Prices are now at 2003 levels.
There are still far more homes on the market than buyers. At the current pace, it would take more than nine months to sell the 3.68 million existing homes on the market. That is down from last month, but still high compared with past levels.
Those figures likely understate the severity of the inventory problem because many foreclosed homes are sold through auction houses and not included in NAR's figures, said Patrick Newport, U.S. economist for IHS Global Insight. "The big problem with the housing market all along has been there are too many homes," he said.
The housing market has yet to receive a bounce from buyers taking advantage of historically low interest rates, analysts said. Last week, the average 30-year mortgage interest rate was 5.12 percent, according to Freddie Mac. But it takes months for lower prices to make an impact as buyers find homes, they said.
"We should expect to see a further drop in home sales over the next few months, even if mortgage rates continue to fall," Newport said.
The housing industry continues to lobby for measures in the stimulus package being debated in Congress that would increase tax credits available to buyers. "There is a pent-up demand which could be unleashed with the right stimulus," Yun said.