Sales of existing homes hit near-two-year high

Existing home sales increased at the fastest pace in nearly two years in January, another signal that a housing-market recovery is under way. 

Purchases increased 4.3 percent last month to a seasonally adjusted annual rate of 4.57 million, the highest level since May 2010, from a downwardly revised 4.38 million pace in December, the National Association of Realtors (NAR) said Wednesday.

Last month's pace was 0.7 percent higher than the spike of 4.54 million in January 2011.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, have made gains in three of the past four months, while inventories have continued to improve.

Still, sales are well below the 6 million figure that economists say reflects a healthy market. Housing experts say that a full recovery is likely years away, but they expect to see gradual improvement this year, further accelerating into 2013. 

"The uptrend in home sales is in line with all of the underlying fundamentals — pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents," said Lawrence Yun, the NAR chief economist.

Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in December.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” Yun said. “Foreclosure sales are moving swiftly with ready homebuyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time."

Total unsold listed inventory has dropped from a record 4.04 million in July 2007, and is 20.6 percent below a year ago.

Edward DeMarco, acting director of the Federal Housing Finance Administration, said his agency would continue to move forward on a plan to turn those foreclosed properties into rentals to help provide a price boost in communities hit particularly hard by the housing crisis, in a report released on Tuesday that suggests ways to reduce the roles of Fannie Mae and Freddie Mac in housing finance. 

Several lawmakers, including Sen. Jack Reed (D-R.I.), have pressed the Obama administration to move forward with the program, which began its first phase earlier this month to find investors.

The national median existing-home price for all housing types was $154,700 in January, down 2 percent from January 2011, as foreclosures continue to clog up the market. 

Distressed homes — foreclosures and short sales that sell at deep discounts, especially compared with new homes — accounted for 35 percent of January sales, up from 32 percent in December and down slightly from 37 percent a year ago.

"Homebuyers over the past three years have had some of the lowest default rates in history," Yun said. "Entering the market at a low point and buying at discounted prices have greatly helped in that success."

Historically low mortgage rates have helped, although some potential homebuyers are still struggling to get a loan. 

A 30-year fixed-rate mortgage hit a record low 3.92 percent in January, down from 3.96 percent in December; the rate was 4.76 percent in January 2011, according to Freddie Mac.

The housing market is likely getting a boost from improving labor market conditions — even though the jobless rate is still above 8 percent, it has been steadily improving since August. Job gains will need to continue well into 2012 to further bolster the sector's recovery. 

Sales to first-time homebuyers were up to 33 percent in January from 31 percent in December. A sales rate of about 40 percent of all transactions reflects a healthier market. 

Investors purchased 23 percent of homes in January, up from 21 percent in December, while cash sales were unchanged at 31 percent in January. Investors account for the bulk of cash transactions.

Contract cancellations, caused mostly by declined mortgage applications and failures in loan underwriting from appraisals coming in below the negotiated price, have emerged as a problem in recent months but were unchanged in January.

In January, 47 percent of NAR members reported that contracts settled on time, 21 percent had delays and 33 percent experienced contract failures. 

Single-family home sales rose 3.8 percent to a seasonally adjusted annual rate of 4.05 million in January, from 3.90 million in December.

Existing condominium and co-op sales increased 8.3 percent to a seasonally adjusted annual rate of 520,000 in January from 480,000 in December. 

Regionally, existing-home sales in the Northeast rose 3.4 percent, 7.1 percent above a year ago; sales in the Midwest were up 1 percent and 3.2 percent higher than January 2011. In the South, existing-home sales rose 3.5 percent and are unchanged from a year ago. 

Sales in the West jumped 8.8 percent but are 3.1 percent below a jump in January 2011.