Surprise! Sales of Existing Homes Rose in February

Sales of existing homes rose unexpectedly in February, providing a bit of good economic news and raising hopes that the slumping housing market may finally be bottoming out.

The National Association of Realtors (NAR) announced on Monday that sales of existing homes - including single-family, townhomes, condominiums and co-ops - rose 5.1 percent over January's figures, to a seasonally adjusted annual rate of 4.72 million units. Half were first-time buyers, many taking advantage of depressed prices at the lower end of the market and the new $8,000 tax credit for first-time buyers.

"Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February," said Lawrence Yun, chief economist for NAR. "Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price."

Median home prices still down

The median existing single-family home price was $164,600 in February, down 15.0 percent from a year ago. And despite the uptick in sales, the housing market remains soft, with February's numbers still 4.6 percent below the 4.95 million units sold in February 2008.

Yun said the recovery in existing home sales was led by the Western region, led by California, where median prices rose for the first time in three years.

Foreclosure fears remain high

The increase in home sales is a bright spot on what has been a pretty gloomy economic landscape. On the same day the NAR report was released, another survey by NAR-affiliate Move Inc. reported that one U.S. mortgage holder in five (21 percent) said they had contacted their lenders in the last 12 months to inquire about restructuring their loan. Over half (52 percent) expressed concern that they or someone they know may face foreclosure over the next six to 12 months.

At the same time, the Move survey also found that 23 percent of U.S. adults plan to buy a home in the next five years, with just over half of them first-time homebuyers.

"It's not all doom and gloom. We found Americans are optimistic about homeownership despite concerns," said Move, Inc., CEO Steve Berkowitz. "They're doing everything they can, from reducing discretionary spending to pay their mortgages, to planning to take advantage of the administration's new program to stop foreclosures. They're also working with lenders to modify loans. Even more impactful are numbers that show interest in home ownership is strong as nearly a quarter of all adults plan to buy a home in the next five years.

Cutting corners to save money

Regardless of age, most Americans appear to be cutting spending in other parts of their lives to pay housing costs. Nearly three-quarters (72%) of mortgage holders in the More survey reported that they reduced spending in the past year in order to make monthly mortgage or rent payments, mostly by cutting discretionary spending such as vacations, entertainment and eating out (75%), personal items such as clothing, personal care and personal luxuries (72%) and energy costs such as gasoline and utilities (71.6%).