More people bought previously occupied homes in January. But the increase was driven by rising foreclosures and all-cash purchases by investors, while the number of first-time buyers shrank.
Prices sank to their lowest levels in nearly nine years, a troubling sign for the struggling housing sector.
Sales of previously occupied homes rose slightly to a seasonally adjusted annual rate of 5.36 million, the National Association of Realtors said Wednesday. That’s up 2.7 percent from 5.22 million in December.
Still, the pace remains far below the 6 million homes a year that economists say represents a healthy market. And the number of first-time home-buyers fell to 29 percent of the market – the lowest percentage of the market in nearly two years. A more healthy level of first-time home-buyers is about 40 percent, according to the trade group.
Foreclosures represented 37 percent of sales in January. All-cash transactions accounted for 32 percent of home sales – twice the rate from two years ago, when the trade group began tracking these deals. In places like Las Vegas and Miami, cash deals represent about half of sales.
Cash-only investors typically snap up properties at risk of foreclosure for bargain-basement prices, and that is “pretty much devastating for prices since banks just want to get the properties off their books at any price,” said Paul Dales, senior U.S. economist for Capital Economics.
A smaller number of first-time home-buyers also means less demand for the homes already on the market. That also drives down prices.
“The cash-rich investors can come in and get foreclosed properties at incredibly favorable prices,” Dales said. “The average Joe can’t take advantage because they simply cannot get the credit to buy.”
Millions of foreclosures have forced down home prices, and more are expected this year. The median price of a home sold in January was $158,800. That’s a decline of 3.7 percent from a year ago and the lowest point since April 2002.
“Home prices continue to languish,” said Steven Wood, chief economist for Insight Economics. “Any recovery will be difficult to sustain given the still-large supplies of homes for sale and distressed properties.”
A major barrier for first-time home-buyers is tighter lending standards adopted since the housing bubble burst. These have made mortgage loans tougher to acquire. Banks are also requiring buyers put down a larger down payment. During the housing boom, buyers could purchase a home with little or no money down.
And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further. High unemployment is also deterring buyers. Job growth, while expected to pick up this year, will not likely raise home sales to healthier levels.
With mortgage rates rising, mortgage applications have been volatile. They’re now near their lowest levels in 15 years. Economists say it could take years for home sales to return to healthy levels.
Last year, home sales fell to 4.9 million, the lowest level in 13 years. And even that number, some say, was overstated.
CoreLogic, a real-estate data firm in Santa Ana, Calif., said it’s found that 3.3 million homes were sold last year, far fewer than the National Association of Realtors’ 4.9 million figure. CoreLogic has suggested that the Realtors figure is too high.
Since 1968, the Realtors group has produced the monthly report on the number of previously occupied homes sold. The group serves as chief advocate and lobbying arm for real estate agents. It says it’s reviewing its 2010 yearly estimate.
One obstacle to a housing recovery is the glut of unsold homes on the market. Those numbers fell to 3.38 million units in January. It would take 7.6 months to clear them off the market at the January sales pace. Most analysts say a six-month supply represents a healthy supply of homes.
Analysts said the situation is much worse when the “shadow inventory” of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.
For January, sales were up in three of the four regions of the country led by an 7.9 percent rise in the West. Sales rose 3.6 percent in the South, 1.8 percent in the Midwest and down 4.6 percent in the Northeast.
The January increase was driven by a 2.4 percent rise in sales of single-family homes. It pushed activity in this area to an annual rate of 4.69 million units. Sales of condominiums rose 4.7 percent to a rate of 670,000 units.