Rising home sales point to a recovery

By Julie Schmit, USA TODAY

Sales of existing homes rose slightly in March but prices fell as the U.S. housing market continues to struggle.

This April 12, 2011 photo shows a home for sale in North Andover, Mass.

This April 12, 2011 photo shows a home for sale in North Andover, Mass.
By Charles Krupa, By AP

This April 12, 2011 photo shows a home for sale in North Andover, Mass.

Existing home sales rose 3.7% from February to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors reported Wednesday. That marked the sixth monthly rise for existing home sales in the past eight months. “We’re clearly on a recovery path,” says Lawrence Yun, NAR chief economist.

Yet median prices in March dropped 5.9% from March 2010 to $159,600. Distressed homes accounted for 40% of sales, up from 35% a year ago, the NAR says. Distressed homes, such as those in foreclosure, typically sell at a 20% discount and pull down market prices.

“At this point, we’re likely to see a steady improvement in sales,” says economist Joel Naroff of Naroff Economic Advisors. But prices will continue to come under pressure because of so many distressed homes. Many economists expect U.S. home prices to fall 5% to 7% this year. Some economists predict steeper declines.

For now, investors are driving much of the increase in existing home sales. They’re snapping up distressed homes, fixing them up and selling them for a slight profit, or turning them into rentals, says Patrick Newport, economist at IHS Global Insight. Investors accounted for 22% of sales activity in March, the NAR says, up from 19% a year ago. Thirty-five percent of March sales were all-cash deals, a record.

Investors are seizing on low prices and strong rental demand, says Paul Dales, U.S. economist at Capital Economics. Rents have edged up in recent months after staying fairly stable for two years, he says. There are also more renters after millions of people lost homes to foreclosure.

There are signs that non-investor buyers are getting more active. Applications for mortgages to buy homes, according to the Mortgage Bankers Association’s Purchases index, have risen 10% over a seven-week period, Newport says.

“This pickup in demand should show up in improved existing home sales in April and May, unless lending conditions tighten,” he says.

Tight credit is already restraining demand, Yun says. The NAR says the average credit score for loans bought by government-backed mortgage giants Freddie Mac and Fannie Mae is now about 760, up from 720 in 2007.

High unemployment and underwater mortgages are also hurting demand. Almost 25% of homeowners with a mortgage owe more than their homes are worth. “This means many households that want to move can’t,” Dales says.

Home sales may rise this year, but “a meaningful recovery is a few years away,” he says.

Check out our Featured Properties of metro Denver houses for sale.

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About dherries
Dave and Sally Herries and The RealtyColorado Team - Real Estate Broker serving the metro-Denver area. Offering properties in urban, sub-urban and rural areas. Our mission statement is "Enriching lives through real estate."

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