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News : US Economy Last Updated: Feb 22, 2012 - 4:08 PM

Existing US home sales rose in January; Distressed sales accounted for 35% of the market
By Finfacts Team
Feb 22, 2012 - 4:05 PM

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Existing US home sales rose in January, marking three gains in the past four months, while inventories continued to improve, according to the National Association of Realtors. Distressed sales accounted for 35% of the market.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 4.3% to a seasonally adjusted annual rate of 4.57m in January from a downwardly revised 4.38m-unit pace in December and are 0.7% above a spike to 4.54m in January 2011.

Lawrence Yun, NAR chief economist, said strong gains in contract activity in recent months show buyers are responding to very favourable market conditions. “The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents.”

Total housing inventory at the end of January fell 0.4% to 2.31m existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in December.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” Yun said. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

Total unsold listed inventory has trended down from a record 4.04m in July 2007, and is 20.6% below a year ago.

According to Freddie Mac, the federal mortgage guarantor, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was a record low 3.92% in January, down from 3.96% in December; the rate was 4.76% in January 2011; recordkeeping began in 1971.

The national median existing-home price for all housing types was $154,700 in January, down 2.0% from January 2011. Distressed homes - - foreclosures and short sales which sell at deep discounts - - accounted for 35% of January sales (22% were foreclosures and 13% were short sales), up from 32% in December; they were 37% in January 2011.

“Home buyers over the past three years have had some of the lowest default rates in history,” Yun said. “Entering the market at a low point and buying at discounted prices have greatly helped in that success.”

All-cash sales were unchanged at 31% in January; they were 32% in January 2011. Investors account for the bulk of cash transactions.

Investors purchased 23% of homes in January, up from 21% in December; they were 23% in January 2011. First-time buyers rose to 33% of transactions in January from 31% in December; they were 29% in January 2011.

Forty-seven per cent of NAR members report that contracts settled on time in January; 21% had delays and 33% experienced contract failures. Contract cancellations are unchanged from December but were only 9% in January 2011; they are caused largely by declined mortgage applications and failures in loan underwriting from appraisals coming in below the negotiated price.

Single-family home sales rose 3.8% to a seasonally adjusted annual rate of 4.05m in January from 3.90m in December, and are 2.3% above the 3.96m-unit pace a year ago. The median existing single-family home price was $154,400 in January, down 2.6% from January 2011.

Existing condominium and co-op sales increased 8.3% to a seasonally adjusted annual rate of 520,000 in January from 480,000 in December but are 10.3% lower than the 580,000-unit level in January 2011. The median existing condo price was $156,600 in January, up 2.0% from a year ago.

Regionally, existing-home sales in the Northeast rose 3.4% to an annual pace of 600,000 in January and are 7.1% above a year ago. The median price in the Northeast was $225,700, which is 4.2% below January 2011.

Existing-home sales in the Midwest increased 1.0% in December to a level of 980,000 and are 3.2% higher than January 2011. The median price in the Midwest was $122,000, down 3.9% from a year ago.

In the South, existing-home sales rose 3.5% to an annual level of 1.76m in January but are unchanged from a year ago. The median price in the South was $134,800, which is 0.3% below January 2011.

Existing-home sales in the West jumped 8.8% to an annual pace of 1.23m in January but are 3.1% below a spike in January 2011. The median price in the West was $187,100, down 1.8% from a year ago.

Prof Peter Morici of the University of Maryland commented:"The market for existing homes continues in the doldrums, as young couples continue to op for renting and older couples can’t unload homes to retire or relocate to find employment.

The National Realtors Association reported today that sales in January were 4.57m, below the 4.69m expected by forecasters. This confirmed concerns that large numbers of buyers were getting cold feet and canceling contracts. Reports of stronger buyer activity and pending sales must be taken with a sack full of salt.

Prices are falling—the average sales price was $154,700, down from $162,200 in December, raising new concerns that the job market might not be recovering as much as thought. A strong job market is necessary to give young couples confidence that they can take the plunge into homeownership, and not get caught in a fire sale situation by losing a job or a forced relocation.

December sales were revised down to 4.380m from 4.61m—that is huge.

Helping homeowners underwater with mortgages and shoring up the housing market will be a big campaign issue this fall but with the continued downward trajectory in prices, federal programs can do little to significantly help. This issue may prove more demagogued than any other by false charges and whimsical promises.

Without a more robust jobs market, existing home values simply won’t level off and begin the long path to recovery."

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