December Existing Home Sales

Existing home sales improved in the last three months of 2011 according to the National Association of Realtors.  December’s 5.0 percent improvement put the seasonally adjusted annual rate of sales at 4.61 million homes.  That pace of sales was enough to push the inventory of homes down to 6.2 months! This is the lowest reading since 2006.

All other things being equal, this type of report suggests an improving housing market.  The smaller supply of homes helped buttress the median price (ending a six month slide) as the price in the middle of the pack inched up 0.3 percent to $164,500.  Interest rates also helped stabilize prices. The national average commitment rate for a 30-year, conventional, fixed-rate mortgage ticked down to another record low of 3.96 percent from 3.99 percent in November.  Getting a loan is still proving difficult for many as one-third of all new contract negotiations ended in failure.  To put it in perspective, the failure rate was 9 percent the year before. Declined mortgage applications and failed underwriting continue to hold sales back.

After peaking in the middle of 2005, existing home sales had been easing.  The recent uptrend is encouraging, especially since it has not been subsidized by favorable tax benefits that created the temporary surge in 2009.  The market is beginning to heal on its own, but one should keep in mind the difference between healing and healed.  There is still the possibility of a large looming shadow inventory of homes coming to market.  This could be created by financial institutions that want to clean up their books by getting rid of non-performing loans.  If this materializes, downward pressure may be placed on home prices as the surge in supply comes to market.  While interest rates currently are low  will banks become more willing to lend loan or will cash deals need become an even larger part of the sales mix?  They currently make up 31 percent.  (by C. Cox)