Housing Sales Suffer Setback

By:
Kara Johnson | March 21, 2011

The housing market suffered a setback in February, as existing home sales took a sharp drop after three straight monthly increases.

Existing home sales fell 9.6 percent in February, to a seasonally adjusted annual rate of 4.88 million units, according to new figures released this morning by the National Association of Realtors (NAR). On an annual basis, sales were down 2.8 percent compared to the 5.02 million rate posted in February 2010, but remain well above last July’s record low of 3.86 million.
 
The NAR’s chief economist, Lawrence Yun, said an uneven recovery in the housing market is to be expected, with ups and downs eventually producing a gradual but irregular recovery. He said tight mortgage credit remains a major drag on the housing market, as well as significant numbers of sales cancellations after property appraisals came in below the negotiated sales price.
 
The tight credit market has resulted in an increase in the percentage of all-cash sales, which made up a record 33 percent of all existing home sales in February, up from 27 percent one year ago. Investors accounted for 19 percent of all sales, down from 23 percent in January but the same as in February 2010.
 
Distressed homes, foreclosures and other properties sold at discount, made up 39 percent of all sales in February, up from 35 percent one year ago. Meanwhile, the median sales price for all homes fell to $156,100, down 5.6 percent from one year ago.
 
“The decline in price corresponds to the record level of all-cash purchases where buyers – largely investors – are snapping up homes at bargain prices,” said Yun.  “We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal.”
 
One positive sign for the month was an increase in the share of first-time homebuyers, which increased to 34 percent of all buyers, up from 29 percent in January. First-time buyers tend to be drawn in by low prices and mortgage rates, although they often have difficulty qualifying for credit.
 
One year ago, first-time buyers made up 42 percent of all home purchases, spurred by the homebuyer tax credit then in effect.
 
The total inventory of homes for sale rose to 3.49 million in February, a 3.5 percent increase from the month before. That translates to an 8.6 month supply at current sales rates, up from 7.5 months in January. A six-month supply is generally regarded as optimum, although the current figures do not reflect a large supply of foreclosed properties being held off the market but which still have a negative effect on home values.

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