Existing home sales increased last month, but declining prices and a high percentage of distressed sales indicate that the housing market faces a long road to recovery.
The National Association of Realtors reported Feb. 23 that existing home sales increased 2.7 percent from December 2010 to a seasonally adjusted annual rate of 5.36 million. That number beat the 5.22 million projected by economists surveyed by Bloomberg News, as bargain hunters snapped up homes in spite of heavy snowfall across the country.
The median price for an existing home fell to $158,800, down 3.7 percent from 164,900 in January 2010, the report also noted. Fourth quarter home prices were down 4.1 percent from the year-ago period, according to the S&P/Case-Shiller National Index released on Feb. 22. That figure represented a drop to 2003 levels, and the worst year-to-year decline in the index since the third quarter of 2009.
Prices dropped even as consumer confidence reached a three-year high in February and unemployment fell to its lowest rate since April 2009.
“There’s not a lot of positive news in the housing sector,” said Scott J. Brown, chief economist at Raymond James & Associates. “We have a huge percent of distressed home sales, and the decline in prices will put more people underwater and lead to more distressed sales still.”
Distressed homes accounted for 37 percent of homes sales in January 2011, up from 36 percent market share in December 2010. The NAR began tracking distressed sales in October 2008. Distressed sales reached 49 percent in March 2009, but have mostly hovered around one-third market share.
The NAR report comes as the House Financial Services Committee considers a Republican-sponsored package of bills that would end the Obama administration’s foreclosure prevention initiatives.
Michael Englund, chief economist at Action Economics, said distressed sales would have to be flushed through the system for the housing market to recover.
“From the point of view of the business cycle, we want to get the foreclosures over with as soon as possible,” he said.
Sherry Cooper, executive vice-president at BMO Capital Markets, said that increased sales represented a liquid market and could be a silver lining in the context of broader economic recovery.
“A lot of jobs will need to be created before housing markets clear,” she said. “People want to move where the jobs are, but they may not move if they can’t sell their homes. So the improvement in liquidity is a very positive factor.”
Brown agreed that jobs would eventually drive a recovery in the housing market, but was less bullish on the importance of increased sales.
“A recovery in the housing sector will depend on job growth, which should arrive over time,” he said. “For the moment, things are pretty soft.”
Updated Mar. 2