Behind the Numbers: Signs of Recovery in Existing-Home Sales?

Associated Press

By Dawn Wotapka and Alan Zibel

On the surface, today’s existing-home sales report seems like more good news for housing. Sales climbed 5% from a month earlier, the third-straight monthly increase.

Even better, the inventory of previously owned homes listed for sale sank to 2.38 million, the lowest level since March 2005. Supply came in at 6.2 months — just about at the six-month level considered healthy. Lower supply is, of course, key to any recovery.

December’s sales results were “a good finish to a very tough year,” said Lawrence Yun, the National Association Realtors’ chief economist who is known for his optimism. For all of last year, 4.26 million homes were sold, up 1.7% from 4.19 million in 2010.

While the once-bloated supply has finally been whittled to a manageable level, many would-be sellers are waiting for nascent signs of recovery (like today) to put their houses back on the market. Plus, plenty of foreclosures working their way through the system could add to supply down the road.

Prices also continue falling. That might be good news for buyers, but it is bad news for homeowners and sellers. December’s median sales price was $164,500, down 2.5% from a year earlier. For all of 2011, the median was $166,100, the lowest since 2002.

Part of the pricing problem is that foreclosures sold for an average discount of 22%, up from 20% a year earlier. Also, investors continue their shopping spree. They purchased 21% of homes in December, up from 19% in November and 20% a year earlier. That’s worrisome because investors are more likely to flip homes or rent them out.

“We interpret these abnormally high numbers as indicators that the existing market is still searching for a natural equilibrium,” wrote Adam Rudiger, a home builder analyst with Wells Fargo, in a client note.

Even more concerning is that cancellations came in at 33%, well above the 9% reported a year ago, showing that problems with tight lending standards and low appraisal values persist.

Here’s what other industry watchers have to say:

Paul Dales, economist, Capital Economics: “There’s no denying that home sales are still very low and will remain low for a few years. But after having risen in each of the last three months, including a 5% month-over-month gain in December, it is clear that a housing recovery is now well underway.”

Ian Shepherdson, economist, High Frequency Economics: “With layoffs slowing sharply, hiring rising and consumers’ confidence rebounding, the pre-conditions for a sustained recovery are falling into place. Sales and starts will keep rising; prices should stabilize, more or less.”

Ellen Zentner, economist, Nomura: “That so-called ‘shadow’ inventory has to come to the market eventually and will keep downward pressure on home prices long after a pickup in building and sales activity. The improvement in homebuilder sentiment and single-family starts and sales is at least partially due to home builders building smaller and cheaper homes that are more accessible to the average borrower, a necessary adjustment to battle low prices for existing homes and stricter lending conditions.”

—Nick Timiraos contributed to this report.

Follow Dawn @dwotapka

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