Sales of existing homes increased last month but remain depressed

Sales of previously owned homes rose slightly last month while inventory continued to drop. 

The National Association of Realtors reported Monday that sales were up 1.4 percent last month to a seasonally adjusted annual rate of 4.97 million, following downwardly revised September figures to a 4.90 million pace, too slow to signal the return of a healthy market. 

Economists estimate that 6 million in sales indicates a robust housing sector. 

Still, sales are running slightly ahead of last year's dismal results, which were the worst in 13 years, with sales 13.5 percent above the 4.38 million unit level in October 2010.

“Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions," said Lawrence Yun, NAR chief economist. 

Single-family home sales increased 1.6 percent to a seasonally adjusted annual rate of 4.38 million in October from 4.31 million in September — 13.8 percent higher than the 3.85 million-unit pace one year ago. 

While the market has been fairly steady while running behind desired levels, potential homebuyers are facing a series of hurdles to make purchases. 

Contract failures — cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses — jumped to 33 percent in October from 18 percent in September. 

They were only 8 percent a year ago, according to NAR. 

“A higher rate of contract failures has held back a sales recovery," Yun said. 

He cited disruption in the National Flood Insurance Program and lower loan limits for conventional mortgages, which have led to higher interest rates for qualified borrowers, as other issues affecting sales.

Congress reinstated higher loan limits for those backed by the Federal Housing Administration in a 2012 spending bill passed last week. 

There is a least one ongoing positive trend: a steady decline in the number of homes on the market. 

Total housing inventory at the end of October fell 2.2 percent to 3.33 million existing homes available for sale, an eight-month supply at the current sales pace, down from an 8.3-month supply in September. 

Inventories have been trending gradually downward since setting a record of 4.58 million in July 2008.

Mortgage rates also remain at near-historic lows, with the rate for a 30-year fixed-rate mortgage falling to a record low of 4.07 percent in October from 4.11 percent in September. The rate was 4.23 percent in October 2010, according to Freddie Mac. 

Meanwhile, though, home prices are still dropping — the national median existing-home price for all housing types was $162,500 in October, 4.7 percent below October 2010. 

Economists expect home prices to stabilize as foreclosures slow and the market returns to a more normal mix of sales. 

Distressed homes — foreclosures and short sales typically sold at deep discounts — slipped to 28 percent of sales in October from 30 percent in September, from 34 percent in October 2010.

“In some areas we’re hearing about shortages of foreclosure inventory in the lower price ranges with multiple bidding on the more desirable properties,” Yun said. “Extending credit to responsible investors would help to absorb inventory at an even faster pace, which would go a long way toward restoring market balance.”

All-cash sales — mostly by investors — accounted for 29 percent of purchases in October, little changed from 30 percent in September and 29 percent in October 2010. 

Investors purchased 18 percent of homes in October, compared with 19 percent in September. 

First-time buyers accounted for 34 percent of transactions in October, up from 32 percent in September. They were at 32 percent in October 2010.

Sales increased in three out of four regions — they were down 5.1 percent in the Northeast but were up 2.8 percent in the Midwest, 2.1 percent in the South and 4.4 percent in the West. 

While the Northeast had a 1.4 percent increase over last year's levels, the other three regions experienced double-digit increases from a year ago, including 19.6 percent in the Midwest.