Sales of Preowned Houses Drop, Prices Go Up Due to Lack of Inventory

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Lack of Housing Inventory

Sales of previously owned homes dropped in December from November, but the national median home prices rose to it’s highest best price in seven years.

With all that said, 4.65 million homes were sold for all of 2012, up from 9.2% in 2011, the most in five years and a sign that the housing market is slowly taking steps toward recovery.

“This isn’t worrisome at all,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, who projected a drop to a 4.95 million annual rate. “For the first time in a while, it looks like it’s a sellers’ market as much as it’s a buyers’ market. I suspect prices and sales will go up again in 2013.”

“We remain convinced that the housing recovery is well under way and should continue through 2013,” said Dan Greenhaus, chief global strategist at BTIG, an institutional brokerage.

Meanwhile, only 1.82 million homes were listed for sale in December, according to the National Association of Realtors. That is a 22 percent drop from a year ago and the lowest supply since May of 2005.

“The greatest concern in the market is the inventory situation,” said Lawrence Yun, chief economist for the NAR. “Even if we see an increase in the Spring and Summer, if home sales hold at the current level or even a 5 to 6-month supply, price increases are guaranteed. We don’t want to see rapid appreciation in prices faster than income.”

First-time home buyers, who are the crucial to the housing recovery, made up only 30 percent of sales in December. Banks have started to make tighter credit standards and also requiring larger down payments since the housing bust, six years ago. That means the buyers that are “would-be buyers” aren’t able to qualify for even the lowest mortgage rates.

The rate on the 30-year fixed mortgage averaged 3.66 percent in 2012, the lowest annual average in 65 years, according to Freddie Mac.

“Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales,” the Realtors group’s chief economist, Lawrence Yun, said in a news release.

Sales for expensive houses priced at $1 million or more rose 62 percent in 2012. While the sales of homes below $100,000 fell 17 percent.

The median price of an existing home rose to $180,800 in December 2012, up 11.5 percent from $162,200 in December 2011. It was the biggest year-over-year gain since November 2005.

“The only concern going into 2013 is the inventory situation,” Lawrence Yun, NAR chief economist, said in a news conference as the figures were released. “Price increases are almost guaranteed going into 2013,” Yun said, adding that the group’s projection of a 4 percent to 5 percent increase this year may be exceeded.

How to play the 2013 housing market

2013 could bring on more home price appreciation and changes in the popular mortgage interest tax deduction.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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