Home Sales Perk Up, But Outlook Still Bleak
Home sales rose 1.4 percent last month to a seasonally adjusted annual rate of 4.97 million, the National Association of Realtors said Monday. That's below the 6 million that economists say is consistent with a healthy housing market and slightly ahead of last year's sales - the worst in 13 years.
The sales are measured when buyers close on the homes.
Many deals are falling apart before that point. One third of Realtors say they've had at least one contract scuttled in October, up from 18 percent in September.
Contracts have been canceled for a number of reasons: Banks have declined mortgage applications; home inspectors have found problems; appraisals showed a home was worth less than the bid; a buyer lost a job before the closing.
"We are not looking for a housing renaissance but the straws in the wind suggest that activity in the sector might be improving slightly," said John Ryding, chief economist at RDQ Economics.
More than two years after the recession officially ended, many people can't qualify for loans or meet higher down-payment requirements. Even those with excellent credit and stable jobs are holding off because they fear that home prices will keep falling. Home sales are also being hurt by a steep decline in first-time buyers, who are critical to reviving the housing market.
More First-Time Homebuyers
Activity among first-time buyers rose slightly last month to make up 34 percent of sales. That's up from 32 percent in September.
At the same time, homes at risk of foreclosure made up 28 percent of sales last month. That's down from 30 percent in September. Many of the sales went to investors, who are increasingly buying homes priced under $100,000. Sales in that category have increased more than 24 percent over the past year while sales of more expensive homes have fallen.
Sales have fallen in four of the five years since the housing boom went bust in 2006. Declining prices and record-low mortgage rates haven't been enough to boost sales.
Most economists say home prices will keep falling, by at least 5 percent, through the rest of the year. Many forecasts don't anticipate a rebound in prices until at least 2013.
The median sales price dropped roughly 2 percent to $162,500 in October.
The high rate of foreclosures has made re-sold homes much cheaper than new homes. The median price of a new home is roughly 30 percent higher than the price of one that's been occupied before - twice the normal markup.
An Investors Market
Investors are taking advantage of the discounts. Their purchases made up 19 percent of all sales last month, compared with less than 10 percent in healthier housing markets.
Home sales rose across the most of the country. Sales increased 4.4 percent in the West, 2.8 percent in the Midwest and 2.1 percent in the South. They fell 5.1 percent in the Northeast.
The glut of unsold homes declined slightly in August to 3.33 million homes. At last month's sales pace, it would take 8 months to clear those homes. Analysts say a healthy supply can be cleared in six months.
The housing market continues to struggle even as the broader economy has shown some improvement in recent months.
The economy grew at an annual pace of 2.5 percent in the July-September quarter. Many economists expect slightly better growth in the October-December quarter.
Last week, the government reported further improvement in the number of people seeking unemployment benefits for the first time. The number fell to 388,000, the fewest since April.
In October, the economy added a net total of 80,000 jobs. It was the 13th straight month of gains. Still, the additional jobs were fewer than the roughly 125,000 that are needed each month just to keep up with population growth.
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