Distressed properties boost US home sales

February 23, 2012

Sales of previously owned US homes rose in January to the highest level since May 2010 as investors took advantage of lower prices to buy distressed properties.

Purchases climbed 4.3 per cent to a 4.57 million annual rate, less than forecast, from a revised 4.38 million pace in December that was slower than previously estimated, a report from the National Association of Realtors showed today in Washington. Distressed properties made up the largest portion of all purchases since April.

Almost one in four of all transactions was made by investors. That's helping to clear the market of unsold properties and may stabilize prices. While the threat of more foreclosures risks slowing progress, housing may get a boost from gains in employment and mortgage rates that are near record lows.

“I don't think we're seeing a full-fledged recovery in housing,” said Michelle Meyer, a senior economist at Bank of America Corp. in New York. “Outside of investors and people wanting to buy distressed properties, the primary housing demand is recovering much more gradually.”

Distressed sales, comprised of foreclosures and short sales in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 35 per cent of the total in January, up from 32 per cent a month earlier.

Investors accounted for 23 per cent of purchases last month, while cash transactions were about 31 per cent, about the same as a year ago.

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Stocks fell as the Standard & Poor's 500 Index failed to hold at an almost four-year high after the reports and data that showed struggling economies in Europe and China. The S&P 500 dropped 0.4 per cent to 1,357.06 at 12:33 p.m. in New York.

European Economy

In Europe, services and manufacturing unexpectedly shrank in February. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate today.

In China, the preliminary 49.7 reading of a manufacturing index from HSBC Holdings Plc and Markit compared with a final 48.8 in January.

China is cutting banks' reserve requirements from Feb. 24 to support an economic expansion that Nomura Holdings Inc. estimates may be 7.5 per cent this quarter, the least since the global financial crisis. In today's report, a measure of export orders fell to an eight-month low.

The median forecast in a Bloomberg News survey for January existing-home sales called for a rise to 4.66 million. Estimates of the 74 economists surveyed ranged from 4.4 million to 4.91 million after a previously reported 4.61 million pace in December.

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Last Year

Existing-home sales, tabulated when a contract closes, climbed to 4.26 million last year from 4.19 million in 2010. Demand peaked at 7.1 million in 2005 during the housing boom. In 2008, sales totaled 4.1 million, the least since 1995.

The number of previously owned homes on the market dropped to 2.31 million, the fewest since March 2005. At the current sales pace, it would take 6.1 months to sell those houses, the lowest since April 2006, down from 6.4 months in December.

The median price of a previously-owned home fell 2 per cent to $US154,700 from $US157,900 in January 2011, today's report showed. The median price dropped to $US166,100 last year, the lowest since 2002, from $US172,900 in 2010.

Single-Family Homes

Sales of existing single-family homes increased 3.8 per cent to an annual rate of 4.05 million. Purchases of multifamily properties, including condominiums and townhouses, rose 8.3 per cent to a 520,000 pace.

Purchases rose in all four US regions, led by gains of 8.8 per cent in the West and 3.5 per cent in the South.

The fourth-warmest January on record may have helped bring out homebuyers. The National Oceanic and Atmospheric Administration reported the average temperature was 36.3 degrees Fahrenheit (2.39 degrees Celsius), 5.5 degrees above the 1901- 2000 long-term average.

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