CLICK HERE for a report on local home sales during February.
WASHINGTON — One month does not a recovery make. But a surprising leap in existing home sales in February was a welcome if tentative sign of hope that the real estate market may be stabilizing.
While sales of existing homes remain at lows not seen in more than a decade, economists were encouraged by the news, saying it reflected buyers who were taking advantage of deep discounts on foreclosures and other distressed properties. That’s essential if home prices are to find their long-awaited bottom.
Prices plunged by almost 16 percent from a year ago in February and are expected to keep falling well into 2009. Tens of thousands of homes remain tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
“The four-letter word in the housing market is ‘jobs,’” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. “If you’re worried about having a job tomorrow, you’re not likely to buy a home now.”
Sheryl Morgan, a real estate agent in Canonsburg, Pa., about 20 miles south of Pittsburgh, recently lost two potential clients after strapped local employers cut back on pay. “Instead of selling and buying a new home, they’re staying and refinancing,” she said.
The National Association of Realtors said Monday that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January.
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions. Home sales activity has returned to December’s levels, but still remains lower than most of last year.
Without adjusting for seasonal factors, though, sales nationwide were down more than 10 percent from a year earlier. The West was the only part of the country to show increased sales, rising nearly 24 percent from a year earlier.
February’s sales figures don’t reflect the new $8,000 tax credit designed to lure even more first-time buyers into the market. However, the credit has begun to attract buyers like Mindy Robbins, 30, of Billings, Mont.
Robbins, who is scheduled to close next month on a $129,000 house with three-bedroom and two baths, said, “I wanted to take advantage of the stimulus package.”
Buyers like Robbins should help invigorate spring and early summer sales, but how much will depend on the overall condition of the U.S. economy.
“If the economy stabilizes around midyear and financial conditions improve, then sales will probably begin to slowly increase as buyers step back into the market,” wrote JPMorgan Chase analyst Abiel Reinhart. He noted that homes are now far more affordable to average Americans due to far lower prices and attractive mortgage rates.
The median sales price in February skidded to $165,400, down from $195,800 a year earlier. That was the second-largest drop on record and prices are now off 28 percent from their peak in July 2006.
However, in a positive sign, sellers’ asking prices are starting to rise in places like San Diego and Orange County, Calif., said Lawrence Yun, chief economist for the Realtors. That could be an early indication that prices are stabilizing in the most distressed parts of the country.
Meanwhile, in contrast with the housing boom, when buyers took out ever-riskier loans and maxed out their home equity lines, “homebuyers are not over stretching” Yun said. “They want to stay within their budget.”
The number of unsold homes on the market last month rose 5 percent to 3.8 million, a typical increase for the winter months. At February’s sales pace, it would take almost 10 months to rid the market of all of those properties.
“Inventories are still high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of rapidly eroding prices,” wrote Joshua Shapiro, chief U.S. economist at MFR Inc.
Sellers don’t want to compete with foreclosures that have swamped the market, especially in California, Florida, Nevada and Arizona.
Up to 45 percent of sales nationwide are foreclosures or other distressed property sales, which typically sell at a 20 percent discount, according to the Realtors group.
That’s great news for buyers, who are paying the most attractive prices in years. Plus, interest rates have sunk to historic lows, with the national average for a 30-year fixed rate mortgage sinking to 4.98 percent last week, just above record lows, according to mortgage giant Freddie Mac.
The Federal Reserve last week moved to reduce already low rates by printing $1.2 trillion and pumping it into the economy through the purchases of mortgage-backed securities and Treasury debt.
The central bank also will double its purchases of debt issued by Fannie Mae and Freddie Mac to $200 billion.