Across recent months we have seen rising existing home sales and a decline in the number of months of unsold inventory. More existing homes are being bought and sold and our inventory stands at just over 6 months worth of sales at the present rate -- so it could be and has been worse in the housing markets. Credit for some improvement is due.
However, we have seen celebration and planning for a return to normalcy get significantly out in front of economic fundamentals -- again. We continue to see underwhelming sales levels, falling median prices and huge market share for distressed properties. The middle class continues to lose its castles. Growing communities of renters and investment buyers define single-family real estate. This looks like a recovery -- long-delayed and mild because the middle class is largely left out of it.
The National Association of Realtors (NAR) defines distressed properties as foreclosures and short sales. In January 2012, 22 percent of sales were foreclosures and 13 percent of sales were short sales. All of this is to say that over a third of sales came from folks who could not keep or afford their homes. A significant portion of the middle class cannot afford to keep or get into historically middle class housing. In addition, some folks who can afford the homes simply don’t see the value in taking the plunge and taking on all that debt and risk.
National Association of Realtors attributes more deals breaking down because houses are getting appraised at lower levels and mortgage lenders are tougher on applicants. On the bright side, the total number of home sales is climbing, boosted by an improving job market.
Pending home sales are on an upward trend, which has been uneven but meaningful since reaching a cyclical low last April, and are well above a year ago, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 2.0 percent to 97.0 in January from a downwardly revised 95.1 in December and is 8.0 percent higher than January 2011 when it was 89.8. The data reflects contracts but not closings. The January index is the highest since April 2010 when it reached 111.3 as buyers were rushing to take advantage of the home buyer tax credit.
Lawrence Yun, NAR chief economist, said this is a hopeful indicator going into the spring home-buying season. “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”
“Movements in the index have been uneven, reflecting the headwinds of tight credit, but job gains, high affordability and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery,” Yun said. “If and when credit availability conditions return to normal, home sales will likely get a 15 percent boost, speed up the home-price recovery, and thereby significantly reduce the number of homeowners who are underwater.”