22 June 2012

Sales Show Housing Market on the Mend

Story first appeared in The Wall Street Journal.
Sales of previously owned homes in May posted sharp gains compared with a year ago, but were down from April, underscoring the fragility of the housing market's recovery.

The National Association of Realtors reported Thursday that sales of existing, or previously owned, homes sold at a seasonally adjusted annual rate of 4.55 million units in May.

While that was down 1.5% from 4.62 million in April, it represented an increase of 9.6% compared with a year earlier and represented the 11th consecutive month of year-over-year increases in sales.

The data reflect completed sales transaction of single-family homes, townhouses and condominiums.

The monthly drop reflected tight inventory rather than softening demand. The normal seasonal upturn in inventory did not occur this spring, and the result is a shortage of properties for sale.

That is partly because some potential sellers are keeping their homes off the market in hopes of higher prices in the future. At the end of May, there was a 6.6-month supply of homes for sale, slightly higher than April but 20% below levels of a year ago, according to the report.

Banks have contributed to the tight inventory by limiting the number of foreclosed properties they put up for sale. Distressed properties—which includes foreclosures—accounted for a quarter of all sales in May, down from 31% in the same month a year ago.

Sellers held off selling because they thought they'd have to price their properties really low, and buyers held off because they thought the prices would keep coming down and down and down.

Meanwhile, prices are edging higher. The national median price of an existing home in May was $182,600, up 7.9% from a year ago and the third consecutive month of year-to-year price gains.

In Winnetka, Ill., a dermatologist just sold his $1.04 million home to move into a larger six-bedroom nearby. He wanted a bigger backyard and more space for his family. The house he bought for $1.87 million had been on the market for more than 400 days. Meanwhile, the old house received multiple offers and went into contract within five days.

The family was motivated to buy and sell quickly because they wanted to take advantage of low interest rates. A Freddie Mac survey this week showed 30-year fixed-rate mortgages fell to 3.66%, a record low.

Despite the recent improvements in the housing market, concern that conditions could change has made some people anxious.

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