Home sales increased in January

Last month, sales of previously occupied homes increased by almost three percent from December’s reported sales. While this may seem like promising progress for the fledgling real estate market, analysts and economists say that recovery is still far in the distance. Unemployment, stricter lending standards, a shadow inventory of home foreclosure sales waiting to enter the market, and a decrease in purchases by first-time homebuyers all indicate that the market is still struggling.

In January, previously occupied home sales rose to a seasonally adjusted annual rate of 5.36 million, which is an increase of 2.7 percent from December’s annual rate of 5.22 million. For the market to be considered healthy, there would need to be approximately six million annual home sales.

In addition, many of the homes purchased in December were foreclosed homes purchased by investors with cash, meaning that individuals and families are still hesitant or unable to buy homes. One reason for this is that mortgage lenders have enacted stricter lending standards and raised minimum down payments. This is reflected in the number of home sales to first-time homebuyers in January, which dropped to 29 percent of all sales. Analysts say that approximately 40 percent of home sales should be made to first-timers in order for the market to be deemed healthy.

Lagging unemployment is also behind the fledgling real estate market, analysts say. While job growth is expected to pick up this year, home sales will likely not return to healthier levels as potential homebuyers remain hesitant about their financial future.

In addition, home prices continue to fall, essentially forcing homeowners to remain in their homes. In January, the median sale price was $158,800, which is the lowest since 2002 and a drop of almost 4 percent over the last year.

Source: Atlanta Journal-Constitution, “Foreclosures, cash deals lifted January home sales”, Derek Kravitz, 23 February 2011