Existing Home Sales on Three Month Winning Streak, but Shadow Inventory Looms


home sales edged higher for the third consecutive month according to data
released this morning by the National Association of Realtors® (NAR).  December sales rose 5.0 percent on a
seasonally adjusted basis to an annual pace of 4.61 million over November sales.  Those sales, however, were revised downward
to 4.39 million from the 4.42 million estimate released last month.  December sales were 3.6 percent higher than
the 4.45 million level recorded in December 2010.  NAR reports there were 4.26 million existing homes sold in 2011, an increase of 1.7 percent from the 4.19
million sold in 2010.

Existing home
sales are based on completed transactions from multiple listing services (MLS)
nationwide and include sales of single-family houses, townhomes, condominiums,
and cooperative apartments.

Sales of
single-family homes rose 4.6 percent to an annual rate of 4.11 million from 3.93
million in November and were 4.3 percent higher than in December 2010 when existing
homes were selling at a 3.94 million pace. 
Condominium and co-op sales were up 8.7 percent to a rate of 500,000
compared to 460,000 in November but are lagging below the 510,000 pace of one
year earlier.

Lawrence Yun, NAR chief economist, said these are early signs of what may
a sustained recovery.  “The pattern of home sales in recent months
demonstrates a market in recovery,” he said.  “Record low mortgage
interest rates
, job growth and bargain home prices are giving more consumers
the confidence they need to enter the market.”

Median prices
were lower than in December 2010.  The
national median price for all housing types was $164,500 and for single family
houses $165,100; both figures were 2.5 percent below median prices in December
2010.  The median condo price was
$160,000, down 3.0 percent.   

Foreclosures accounted
for 19 percent and short sales 13 percent of sales in December.  This 32 percent total for distressed homes
was up from 29 percent in November but lower than the 36 percent share in December
2010.  Foreclosures
sold for an average discount of 22 percent and short sales were discounted 13
percent in December compared to 20 percent and 16 percent in December 2010.

The inventory of homes for sale (not to forget “Shadow Inventory, Moving not Falling“) at
the end of December dropped 9.2 percent to 2.38 million, representing a
6.2-month supply at the current sales pace and an improvement from the 7.2
months supply in November and Yun commented that the supply suggests many
markets will see prices stabilize or grow moderately in the near future.   The December inventory is the lowest since
March 2005 when there were 2.30 million homes on the market.  Inventories peaked in July 2007 with a
backlog of 4.04 million homes.

Thirty-one percent of sales were to
first-time buyers in December, down from 35 percent in November and 33 percent
a year earlier.  Investors accounted for
21 percent of sales, up from 19 percent a month earlier and unchanged
year-over-year.  All-cash transactions
rose to 31 percent from 28 percent in November.

Once again a third of NAR members
reported a contract failure
during the month, identical to November but a sharp
contrast to a year earlier when only 9 percent reported a cancelled sale.  NAR said that, “Although closed sales are
holding up better than this finding would suggest, contract cancellations are
caused largely by declined mortgage applications and failures in loan
underwriting from appraised values (read: “Appraisers say “Don’t Blame the Messenger” for Low Home Prices“) coming in below the negotiated price.”

A shown in the
table below, sales were up in every region month-over-month and in three
regions on an annual basis while median prices were down in every region except
the West. 

While NAR speaks of a “market in recovery”, not everyone is on board:

“December’s existing home sales total of 4.61 mln was a little below the consensus of 4.65 mln, though up a solid 5.0% due to November being revised down to 4.39 mln from 4.42 mln. The data is another indicator suggesting housing sector improvement, with even some tentative hints of recovery in prices, while a falling inventory of existing homes for sale may encourage construction of new ones. However the level of December sales does hint that the surge in November pending home sales overstated the picture. Looking into the breakdown there are more minor disappointments, with gains led by regions that may have benefited most from mild weather, and a rise in distressed sales but a fall in sales to first time buyers.” 

“If you look at the report the supply fell, but what that doesn’t take into account is the shadow overhang, the distressed side of the market, people that are basically delinquent on their mortgages and haven’t gone through foreclosure yet. That pipeline is worth seven million units, and represents about 20 months of supply. The distressed is still a huge problem. When you look at home prices overall in the U.S. I think they’re still going to decline modestly in 2012.”

“The heydays of the housing market are far behind us and it will be a long tough road to recovery. In fact, we still believe that housing will remain depressed for most of the year and the only way the Federal Reserve can help is by keeping interest rates low and monetary policy easy.”

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