U.S. Economy: Existing Home Sales Climb to Eight-Month High
Sales of U.S. previously owned homes unexpectedly climbed in January to the highest level in eight months as investors used all-cash transactions to snap up distressed properties.
Purchases increased 2.7 percent to a 5.36 million annual rate, figures from the National Association of Realtors showed today in Washington. The share represented by foreclosures and short sales rose to a 12-month high, pushing the median price to the lowest level in almost nine years.
Affluent investors may continue taking a bigger share of the market as credit restrictions and 9 percent unemployment keep first-time buyers at bay. A pickup in job growth is needed to ensure more Americans will be in a position to consider home ownership.
“It is really a foreclosure-driven market,” said Ethan Harris, head of developed markets at Bank of America Merrill Lynch Global Research in New York, who projected sales would increase to a 5.38 million rate. “I don’t think it is a sign of the market returning to health.”
Stocks fell as oil prices surged and Hewlett-Packard Co.’s forecasts trailed analysts’ estimates. The Standard & Poor’s 500 Index dropped 0.6 percent to 1,307.4 at the 4 p.m. close in New York. The S&P Homebuilder Supercomposite declined 1 percent as foreclosures represent competition for construction companies.
The median forecast of 73 economists surveyed by Bloomberg News projected a 5.22 million sales pace from a previously reported 5.28 million rate in December. The NAR revised the prior month down to 5.22 million. Estimates ranged from 4.86 million to 5.4 million.
Lawrence Yun, chief economist at the Realtors’ group, said distressed sales accounted for 37 percent of total sales last month and all-cash transactions represented 32 percent, three times the average of about 10 percent.
The increase in demand was “encouraging,” Yun said in a press conference as the figures were being released. “Right now it is the cleansing of distressed property that is coming on to the market” that is driving sales. Investors with all-cash offers are rushing in looking for “bargains,” he said.
Those sales climbed to about 50 percent of the total in cities like Las Vegas and Miami last month, he said. The share of first-time buyers fell to 29 percent last month compared with an average 40 percent, said Yun.
The median price decreased 3.7 percent from January 2010 to $158,800, the lowest since April 2002. Purchases were up 5.3 percent from a year earlier, when a government tax break was still in effect.
The number of previously owned homes on the market fell 5.1 percent to 3.38 million in January. At the current sales pace, it would take 7.6 months to sell those houses compared with 8.2 at the end of the prior month.
Month’s supply in the eight months to nine months range is consistent with stable home prices, the group has said.
Three of four regions showed increases last month, led by a 7.9 percent gain in the West. Purchases in the Northeast fell 4.6 percent.
CoreLogic Inc., a real-estate analytics firm based in Santa Ana, California, this week released a report showing that 3.3 million existing homes were sold last year, less than the 4.9 million tallied by NAR.
The CoreLogic figures track sales through property records at local court houses, while the NAR follows sales through the multiple listing services used by brokers.
Yun told reporters today that NAR’s tallies in recent years may have been overstated because the consolidation of listing services may have caused distortions in the data. He said estimates of direct sales by owners may also have been overstated.
Benchmark revisions to the group’s data may correct a possible “upward drift” in the figures, he said. The revisions will be based on new models because the 2010 Census doesn’t include the same housing-related questions as the 2000 count, on which the prior benchmark revisions were based.
“Hopefully, we can find another reliable external source of data to make the benchmarking more frequent and to lessen any drift that occurs,” he said in a telephone interview. “It will not change the fundamental trend line. What it will do is lower the level a bit; hopefully it is a bit.”
Housing, the industry that triggered the recent recession, is struggling to gain traction after the lapse of a government homebuyers’ tax credit worth up to $8,000 caused existing sales to plunge to a 3.84 million pace in July.
The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from a year earlier, the biggest 12- month decrease since December 2009, the group said yesterday. Prices were down 31 percent from their peak in July 2006.
Industry projections reinforce the concern about housing. The number of homes receiving a foreclosure notice will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc., an Irvine, California-based data seller, said last month.
Rising borrowing costs represent a new hurdle. The average rate on 30-year fixed mortgages matched or exceeded 5 percent for a third period in the week ended Feb. 18, the first time that’s happened since April, the Mortgage Bankers Association said today. Rates have been rising from a record low of 4.21 percent reached in October.
Homebuilders are still posting losses. D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, on Jan. 27 reported a fiscal first-quarter loss that was wider than analysts expected.
“I think 2011 will be a marginal, weak year in the homebuilding industry,” D.R. Horton Chief Executive Officer Donald Tomnitz said during a conference call the same day. “Given the weak macroeconomic conditions, high levels of existing homes for sale and tight mortgage availability, we remain cautious and realistic in our expectations.”
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