Home sales fell 9.6 percent in February, a larger than expected drop that erased nearly half the gains made during the past three months. Existing home sales, which include completed transactions on single-family homes, townhouses, condominiums and co-ops, slowed to a seasonally adjusted annual rate of 4.88 million in February, down from a revised 5.40 million in January, the National Association of Realtors (NAR) said Monday.
Severe winter weather could have kept buyers away in January and led to fewer transactions in February, noted Anika Khan, economist with Wells Fargo. But the February numbers illustrate something more. “The housing market is still clearly years away from staging a meaningful recovery,” said Paul Ashworth, chief U.S. economist with Capital Economics.
Sales of single-family home sales fell 9.6 percent, to a seasonally adjusted annual rate of 4.25 million units, down from 4.70 million in January. Condo sales were down 10 percent. Home sales dropped in all four regions of the country, with the Midwest experiencing the largest decline of 12.2 percent.
Lawrence Yun, NAR’s chief economist, said home sales are constrained by tight credit; contracts have been cancelled due to conservative appraisals that don’t support prices negotiated between buyers and sellers. This has delayed some transactions. “The tug and pull is causing a gradual but uneven recovery,” said Yun. The trade group estimates that home sales would increase by 15 percent if credit returned to normal lending practices seen before the 2007 housing bust.
Sales of Discounted Homes Rise
NAR also reported that a third of all homes were purchased with cash, inching up slightly from January’s 32 percent but nearly double the rate at this time a year ago. Distressed homes, or those sold at discount, accounted for 39 percent of the market share in February, up from 37 percent in January. This dragged median home prices even lower. The number of first-time home buyers increased to 34 percent in February, up from 29 percent in January. NAR says a healthy number would be around 40 percent; the last time that number was reached was in June 2010.
The median existing-home price dropped 5.2 percent to $156,100 in February, the lowest level since April 2002. “House prices will decline further as distress sales drag down the median house price before it stabilizes in the second half of the year,” said Celia Chen, economist with Moody’s Analytics.
The housing market has struggled to gain momentum, despite the spikes in sales in late 2009 and early 2010 generated by the first time home buyer tax credit. That credit has expired, and the market today faces a glut of unsold homes. At the end of February, the number of homes available for sale rose by 3.5 percent to 3.49 million. At the current sales pace, it would take 8.6 months to eliminate all of the unsold homes in this country (NAR says a healthy range would be around six months).
Still, the economy is on track to generate more jobs in 2011, which could brighten the prospects for housing. High unemployment, which stands at 8.9 percent, has typically discouraged potential buyers from making large financial commitments for all the obvious reasons. Additional jobs coupled with high housing affordability should improve housing demand, said Chen of Moody’s.
Other facts, both domestic and international, could affect an immediate housing recovery. Millions of foreclosures have forced home prices down and more foreclosures are expected this year. The large number of Americans who owe more on their mortgages than their homes are worth increases the risk that a negative shock to household income could set off another wave of mortgage defaults, Chen said. The number of Americans who are underwater on their mortgages rose in the last quarter of 2010 to 11.1 million; about 23 percent of all mortgaged homes are underwater.
Uncertainty in the Middle East and disruptions to the Japanese economy from the earthquake could potentially spill over to the U.S. economy and pose a negative risk, Chen added.
U.S. February Existing Home Sales Fall to 4.88 Million Rate (Business Week)
Existing Home Sales Plunge, But Some Housing Stocks Gain (Wall Street Journal)
Existing Home Sales Tumble (CNN)