Existing home sales continued their upward rally in January, a sign affirming that the housing market is on the path to recovery.
Around 4.57 million homes were sold in January, an estimate better than what was expected.
This is a 4.3% increase from the December home sales, which were downwardly revised by the National Association of Realtors (NAR) and now stand at 4.38 million. Record low mortgage rates, rock-bottom home prices, stable job growth and improved consumer confidence are some of the factors leading to the increase.
Some experts like Ilhan Kubilay Geckil, senior economist at the Anderson Economic Group LLC also believe that the increase is demand driven.
According to him, a large number of baby-boomers, who own houses are spending on condos in cheaper markets like Florida, whose housing market was hit the most, and in turn are selling their existing houses enjoying profits due to the price trade-off. They are getting bargain deals as prices are very low and this is affecting the sales substantially.
“Everybody wants a good deal. Its all about expectations,” he said.
However, the positive increase is weighed down by the number of foreclosure sales or sale of distressed properties that are a part of 4.57 million homes sold.
Distressed sales constituted around 35% of the total homes sold in January compared to 32% in December and 37% in January 2011.
“The component of distressed sales is significant,” said Jimmy Jean, economic strategist at the Desjardins Economic Studies, a branch of the Canadian Desjardins group.
A huge chunk of foreclosed properties is in the market at present, and buyers are able to buy them at throwaway prices.
However he also said that sooner we get rid of this shadow inventory, better it is for the housing market to revive.
“It is positive to see the inventory decline, the market is slowly but surely improving,” Jean added.
Although the increase in home sales is a good sign for the housing market, a full recovery will happen only when the home prices improve. The increase in the home prices is still far fetched.
“It will at least take about 18 to 24 months for the home sales to have an effect the prices,” said Jean.
Only if the economy maintains the current level of home sales, the effect would trickle down to the home prices. Factors like income growth and the stock market also play a crucial role according to him.
Some others feel that the home sales should further increase by another 1 or 2 million a month.
“We must have 5 to 6 million home sales per month for a housing market recovery,” Geckil said.
He expects the growth in the housing would begin only from the fourth quarter of 2012 and there would be no significant movements in the home prices till 2013.
The condition of the housing market is sure improving, however, the fear of even a slight hit to the existing favorable conditions sill looms in the industry.
“We expect to have a much more balance in the market this year, given that there are no unforeseen surprises,” Walt Molony, head of public affairs at the National Association of Realtors (NAR) said.