Existing Home Sales Switch Gears and Drive Upwards, But For How Long?

The rate of existing home sales increased in March, but all eyes are on the next two months and whether home sales can sustain themselves without a federal tax credit. The seasonally adjusted annual rate of existing home sales was 5.35m units in March, up 6.8% from 5.01m in February and up 16.1% from 4.61m in March 2009. The increase from February to March halted a three-month-long run of declines in the monthly data produced by the National Association of Realtors (NAR). But with the deadline to sign a sales contract for the $8,000 tax credit for first-time buyers and the $6,500 credit for existing homeowners just a week away, it remains to be seen how sales will be impacted with that stimulus removed from the market. NAR chief economist Lawrence Yun is optimistic the boost in March is the beginning of a spring boost in sales. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” Yun said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1trn in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.” But Paul Dales, the US economist in the Toronto office of Capital Economics, wrote in commentary that while sales are likely to increase sharply in April, May and June, the rate will drop back after that. “We think they will fall further due to a fundamental weakness of demand linked to the high unemployment rate, low income growth and heavy household indebtedness,” Dales wrote. The total housing inventory at the end of March increased 1.5% to 3.58m, an eight-month supply of homes at the current sales pace, down from an 8.5-month supply in February. The unsold inventory is 1.8% below a year ago and is 21.7% below the record of 4.58m in July 2008. “Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably,” Yun said. “In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time home buyers.” According to a survey of NAR members 44% of home purchases in March were by first-time buyers, while investors accounted for 19% of transactions, while the remaining sales were to repeat buyers. All-cash sales accounted for 27% of all transactions, even from February. NAR said the median existing-home price was $170,700 in March, up 0.4% from March 2009. Distressed homes accounted for 35% of sales last month, the same as in February. “With home values stabilizing, a revival in home buying confidence will likely help the housing market get back on its feet even as the tax credit impact disappears,” Yun said. The NAR data is a measure of completed transactions for existing single-family, townhomes, condominiums and co-ops housing units in the United States. The single-family segment of existing sales rose 7.3% to a seasonally adjusted annual rate of 4.68m in March, up from a rate of 4.36m in February. The median existing single-family home price was $170,700 in March, up 0.6% from March 2009. Existing condominium and co-op sales increased 3.1% to a seasonally adjusted annual rate of 670,000 in March, up from 650,000 in February, and are 39.3% higher than the 481,000-unit level in March 2009, NAR said, adding the median existing condo price was $170,600 in March, which is 0.7% below a year ago. Regionally, the rate of existing home sales increased the most in the Midwest, where the rate of 1.19m in March was 7.2% higher than February and 15.5% above a year ago. The median price in the Midwest was $139,300, up 0.2% from a year ago. In the South, the annual rate of 1.97m existing home sales in March is up 7.1% from February and 13.9% higher than a year ago. The median price in the South was $154,800, up 5.2% from March 2009. Existing-home sales in the West rose 6.6% to an annual rate of 1.3m in March and are 14% above March 2009. The median price in the West was $209,400, down 7.9% from a year ago. In the Northeast, existing sales increased 6% to an annual level of 890,000 in March and are 25.4% higher than last year. The median price in the Northeast was $249,800, up 8.9% from March 2009. Write to Austin Kilgore. Looking for more insight from Capital Economics’ Paul Dales? Check out the May edition of HousingWire magazine, where Dales provides his commentary on housing in the Hot Seat feature.

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