Existing home sales drops in January

Dennis Norman

According to the latest report from the National Association of REALTORS(R), existing home sales in January decreased 7.2 percent to a seasonally adjusted-annual rate of 5.05 million units in January from a level of 5.44 million units in December, however this does represent an increase over a year ago when the rate was 4.53 million units (seasonally adjusted).

Lawrence Yun, NAR chief economist, said there is still some delay between shopping and closing that affected current sales. “Most of the completed deals in January were based on contracts in November and December. People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales,” he said. “Still, the latest monthly sales decline is not encouraging, and raises concern about the strength of a recovery.”

I don’t like “seasonally adjusted rates of sales”:

If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers, particularly when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.

The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:

• There were 275,00 existing homes sold in January which is a 33.4 percent decrease from December’s 413,000 sales.
• January’s sales of 275,000 units is a 7.0 percent increase from January, 2009′s sales of 257,000 units.
• Below are highlights from each region:
  • Northeast – 41,000 homes sold in January, 2010, a decrease of 37.8 percent from December and and increase of 17.1 percent from the year before.
  • Midwest - 54,000 homes sold in January, 2010, a decrease of 37.2 percent from December and an increase of 3.8 percent from the year before
  • South - 104,000 homes sold in January, 2010, a decrease of 35.0 pecent from December and an increase of 8.3 percent from the year before.
  • West – 76,000 homes sold in January, 2010, a decrease of 24.7 percent from December and a increase of 2.7 percent from the year before.

Other highlights of the NAR Report:

• Median price of homes sold in January in the US was $164,700, a decrease of 3.4 percent from December’s median price of $170,500 and is the same as the median price from a year ago.
• Distressed sales accounted for 38 percent of all home sales in January, an increase of 18.8 percent from December’s rate of 32 percent.
• First-Time homebuyers accounted for 40 percent of the home sales in January, down from 43 percent in December.
• Investors were the buyers of 17 percent of the homes in January, up from 15 percent in December.
• Repeat home buyers were responsible for approximately 43 percent of January’s sales.
• Total housing inventory at the end of January was 3,265,000 homes for a 7.8 month supply, an increase of 8.3 percent from last months 7.2 month supply.

My Take On the Numbers:

I think the numbers in this report, along with other recent reports, shows that reports about a “housing recovery” we heard over the past few months were premature and had put way too much emphasis on a little uptick in sals and/or prices. Having said that, I do feel this report and others support the possibility that the housing downturn is leveling off and trying to find the “bottom”. Finding the bottom will be good and I think actually instill some confidence in buyers; even if there is no indication prices will appreciate any time soon, I think a lot of buyers would be happy just to feel comfortable prices aren’t going to drop after they buy.

What to look out for:

• Interest rates – Rates ALWAYS have an affect on the housing market…presently we have near record-low rates, however the Fed Reserve is indicating they will stop purchasing mortgage-backed securities in the next couple of months and industry experts feel this will lead to higher interest rates. In addition, there is some concern about inflation, which would lead to higher rates as well. Needless to say, higher interest rates are not going to help the housing market recover.
• Tax Credits- By all indications the homebuyer tax credits have played a role in getting buyers to pull the trigger and has contributed to home sales. The credits come to an end April 30th, unless extended by Congress which I feel is doubtful, and then we will see what happens to the market afterward. First-time buyers, the biggest benificiaries of the credit, make up 40 percent of the sales currently, so they are s significant component.
• Foreclosures – Foreclosures, REO’s and short-sales all put negative pressure on the housing market in terms of home prices and there is no end in site.
• Underwater Borrower Sentiment- There are a record number of people “underwater” on their homes (owe more than their homes are worth) but, according to Robert Shiller, a noted economist, 80 percent of those borrowers still feel like they should continue to pay their mortgages and stick it out. According to a recent report by First Amercian CoreLogic, this sentiment changes dramatically once homeowners exceed 25 percent negative equity or exceed $70,000 in negative equity…according to the same report the average negative equity for underwater borrowers at the end of 2009 was $70,700. The number of underwater homeowners was 11.3 million at the end of 2009; if the sentiment of these homeowners change and they start walking away from their homes, look out housing market!

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