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Price Cuts Boosting Home Sales

Existing home sales grew for the third month in a row, suggesting life is returning to the housing market . But experts say the boost may not be great news for sellers, who appear to be caving on prices.

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At first glance, today’s report looks rosy: Existing home sales rose 5% in December, stronger than the 4% rise in November and 1.4% increase in October, according to the National Association of Realtors. Lawrence Yun, NAR chief economist, sees this as a significant sign of a sustained recovery. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market,” he says. (The estimates are based on completed transactions on single-family homes, townhomes, condominiums and co-ops.)

But this may be better news for buyers than those under pressure to sell, experts say. “Many sellers have fueled this confidence in part by dramatically lowering prices,” says Seth Rabinowitz, partner at management consultants Silicon Associates. Sale prices of existing homes fell nearly 8% last year in the Midwest versus a fall of just 1.1% in the South, a bigger 2.7% dip in the Northeast – and a rise of 0.3% in the West. (Sale prices could even be worse than that in some regions: The NAR revised its figures: Last month, it said that prices had dropped by 8.4% during 2011 in the West.)

In addition to those regions showing depressed house prices, there are also large urban areas where real estate has yet to show any real recovery, analysts say. Large swathes of Florida, which saw a building boom of holiday homes before 2008, the California Inland Empire area, Detroit and Cleveland still suffer from oversupply and/or weakness in their job markets, says Leonard P. Baron, a lecturer in real estate at San Diego State University. However, for those who are interested in long-term investment properties or getting on the property ladder, he says, “This is an incredible time to buy.”

Others say buyers should proceed with caution, particularly given the uncertain economic backdrop. “Realtors have to be optimistic,” says Patrick O’Keefe, director of economic research at J.H. Cohn consultants in Roseland, N.J. “I expect improvement but not a robust recovery.” In 2006, he says existing home sales averaged around 6.5 million units versus 4.61 million for 2011, and says house prices are still around 25% below their peak. “The general public is not as confident today as it has been historically that home ownership makes economic sense,” O’Keefe says.

That said, house buying season may indeed have come early for those who have financing and want to get their foot on the property ladder, experts say. “This data is counter to conventional wisdom that sales activity is bolstered in Spring,” Rabinowitz says. It also augurs well for the traditional peak buying season, according to Susan M. Wachter, professor of real estate and finance at Wharton University of Pennsylvania: “Home mortgage applications are up significantly, which may also point to the recognition of stronger markets this Spring.”

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