April existing home sales rise 2.9 percent on foreclosures
Economists surveyed by Bloomberg News had expected April existing home sales to total a 4.67-million-unit annualized rate. Still, existing homes are down 3.5 percent in the pat 12 months, and have plummeted 35 percent from the sector's peak about four years ago.
Foreclosures boost sales, but hurt prices
The median home price fell to $170,200 in April, a 15.4 percent plunge from the same period a year ago and the second largest year-over-year median price decline for existing homes on record. Just as telling: homes prices at the lower-end of the market are accounting for the bulk of sales, while the luxury end, with homes priced above $750,000, is stagnant.
Moreover, sales of distressed properties – which typically sell at a discount - continued to downwardly distort the median price in April, the NAR said: distressed properties accounted for 45 percent of all sales in April.
"Because foreclosed properties will likely be released into the market over the rest of year, it is critical that distressed homes be quickly cleared from the market," NAR Chief Economist Lawrence Yun said. "Fortunately, home buyers are being attracted to deeply discounted prices and are bidding up many foreclosed listings, particularly in California, Nevada, and Florida – this will set the stage for healthy market conditions going forward."
April's sales and price stats provide evidence confirming higher sales, but not a healthy housing market. Sales are rising in regions that have experienced the largest price declines – areas that formerly registered the largest price gains during the leverage-fueled housing bubble of 2002-2007. Existing home sales surged 11.6 percent in the Northeast, where the median price fell 9.6 percent to $237,400; and rose 3.5 percent in the West, where the median price plunged a gargantuan 21.8 percent to $222,600.
Existing home sales also rose 1.8 percent in the South, with the median price dropping 12.8 percent to $148,000. In the Midwest, sales fell 2.0 percent, with the median price declining 11.7 percent to $138,800.
Celia Chen, an economist for Moody's Economy.com in Pennsylvania, is in the camp that argues the housing sector's stabilization is underway.
"Home sales and construction activity are probably at the bottom," Chen told Bloomberg News. "Home sales are being boosted by foreclosure sales and that's helping to keep activity stable."
Also, existing home inventories totaled 3.97 million homes in April, which represents a 10.2.-month supply at the current sales pace, compared with a 9.6-month supply in March. Realtors say investors should ignore the April increase in inventories because inventories historically rise in the spring, when many families post their homes for sale in preparation for a summer move, when school is not in session. Economists say a healthy, normal existing home sale market has a 3-5 month supply of homes available for sale.
Economic Analysis: Existing home sales rose slightly, but there are qualifiers, namely the large number of distressed sales. Still, the optimist would argue that 'the market is working as it should, clearing excess inventory via price declines.' Even so, investors need to keep in mind that despite April's upside sales data, it's only one month's data, it's subject to a revision, and inventories remain at very high levels. Further, the decline in home prices continues, and thus far shows no sign of abating. That said, if existing home inventories drop on stronger sales this summer, that would represent another 'incremental positive' for the U.S. housing sector.