Distress Sales Skewing Median Existing-Home Sales Price

Home sales in the first quarter of 2009 reflect that home buyers have been bargain hunting, according to a report released on Tuesday by the National Association of Realtors (NAR).

First-time home buyers accounted for half of all home purchases, and distress sales - foreclosures and short sales - also accounted for nearly half of all homes sales during this period, pushing down the median sales price.

Lawrence Yun, NAR chief economist, said some areas showed dramatic drops in home prices. “In areas with the biggest price declines, we also see much higher levels of distressed sales which are distorting the data,” Yun said. “We are very much in a bifurcated market with sharp differences between foreclosures and short sales on one hand, and traditional homes on the other. In many cases homes are selling below replacement construction costs, which speaks to great value in the current market.”

The median price of single-family homes in the first quarter of 2009 was $169,000 - 13.8% lower than they were in the first quarter of 2008. Out of 152 metropolitan statistical areas, 134 reported reported lower median home prices than the first quarter of 2008 while only 17 metros reported price gains.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said there are two levels of pricing in the current market. “Traditional homes in good condition have held their value much better, so owners shouldn’t be overly concerned about median prices. Most sellers can expect a good return if they’ve been in their home for a normal period of homeownership and haven’t excessively tapped their equity,” he said.

The existing home sales rate in the U.S. - including both single family and condos - is down by 3.2% from the fourth quarter of 2008, and down by 6.8% from the first quarter last year. Seventeen states had an increase in sales from the fourth quarter, and six states had an increase in sales from a year ago.

Yun sees the market in a lull before an upturn. “Over the past couple months, contract activity for home sales, buyer traffic and inquiries about the $8,000 tax credit have all increased,” he said.

"Close to 455,000 buyers purchased their first home during the first quarter, and those are likely just the first wave of new buyers coming into the market – they’re critical for a housing recovery,” Yun said. “Housing affordability conditions are at record high levels and we expect a measurable increase in home sales during the second half of the year, which would help stabilize prices in most areas.”

In addition to increased affordability and deals on distressed properties, historically low interest rates - 5.06% for a 30-year conventional fixed-rate mortgage in the first quarter of 2009 - have also impacted existing home sales by making home ownership more affordable. Those rates were 5.86% in the fourth quarter and 5.88% a year ago, according to Freddie Mac.

Sales gains in the U.S. were strongest in some of the states that have been hit hardest by the housing decline - Nevada sales were up 116.8% from a year ago, California sales increased by 80.6%, Arizona had 50.2% more sales than a year ago, and Florida sales increased by 25%.

Existing-home sales rates and median-price in the first quarter 2009 differ dramatically by region.

Existing homes sales in the Northeast fell by 10.3% from the fourth quarter of 2008 and are 20.1% lower than they were a year ago. The median single-family home price in this region declined 15.9% from the median a year ago to $235,500.

Midwest existing home sales declined 2.2% from last quarter, 13.1% lower than a year ago. The median sales price of a single-family home was $132,000, down 6.8% from a year ago.

Existing-home sales in the South slipped by 2.5% from last quarter and are down by 12.7% from a year ago. The median existing-home sales price of $146,000 is 12.7% lower than it was from a year ago.

In the West, existing home sales dipped by .9% in the first quarter but are 24.3% higher than they were a year ago.

NAR held a summit yesterday with experts from housing, finance, government, academia, and media arenas "to inspire legislative and public policy action to stabilize the real estate market and spur economic recovery."

McMillan reiterated that an economic recovery is not possible without a housing recovery. "Moving the real estate market forward is imperative," he said. "The goal of this forum was to develop a series of ‘next steps’ that will serve as a blueprint for comprehensive progress, and we must continue to push forward."

Federal Deposit Insurance Corporation (FDIC) Director Sheila Bair said that economic recovery will take a coordinated effort. "Recovery is going to require hard work from the industry and the government,” she said. “Housing led us into this downturn and housing needs to lead us out."

"As the leading advocate for housing issues and homeownership, NAR urges the federal government to make stabilizing the real estate market a priority," said McMillan. "We will continue to work with the Obama administration and Congress to keep taking meaningful action toward this goal."

NAR plans to meet with Members of Congress this week "to discuss pressing issues like short sales, limitations on mortgage availability and mortgage reform." McMillan said, "Home buyers must be protected against mortgage lending abuses while being assured of access to affordable mortgages. Beyond the destructive effect on individuals and families, abusive lending diminishes consumer confidence in the housing industry.”




Source:
National Association of Realtors