Pending Home Sales Plunge in December
The chilling month of December drove pending home sales to its lowest depths since October 2011. Winters are always slow for the housing industry. With temperatures dipping to decade-low levels in some parts of the country, this winter has been particularly harsh for the market.
According to the National Association of Realtors®, the seasonally adjusted pending home sales index fell 8.7 percent to 92.4. NAR said that’s the seventh straight monthly decline for the index. Usually, there’s a 30 to 60 day delay between when an agreement is signed and when a sale is completed.
“Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers,” said Lawrence Yun, NAR chief economist.
Rising prices and shrinking inventory are also driving down sales. Many potential homebuyers are being priced out of their dream homes because of increased mortgage rates, less choice in inventory and exorbitant prices. It still looks like a seller’s market out there.
“Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice,” Yun said. “Although it could take several months for us to get a clearer read on market momentum, job growth and pent-up demand are positive factors.”
The west experienced the worst effect on prices with the index dropping 9.8 percent in December to 85.7 percent. That’s 16 percent below December 2012, NAR said. In the Midwest, the index fell 6.8 percent to 93.6 percent. That’s 6.9 percent lower than the comparable year-ago period.
Overall, though, the housing market reaped handsomely from low mortgage rates in 2013. According to NAR, existing home sales totaled 5.1 million. That’s the highest in seven years.
This year, the national median existing-home price is expected to rise about 5.4 percent, NAR says.
Foreclosures Still a Problem
Distressed homes made up 16.2 percent of all home sales last December, according to a USA Today report. These troubled homes were sold at a huge discount, nearly 40 percent less than the prices for conventional, nondistressed homes.
Citing RealtyTrac’s Year-End 2013 U.S. Residential & Foreclosure Sales Report, USA Today said that some of the largest U.S. cities “are still processing foreclosed homes.”
More than one in four home sales in America’s top 10 metro areas were distressed properties, the paper said. In Las Vegas alone, 41 percent of homes sold last year were foreclosed properties, and they sold for 15 percent less than regular homes, according to the paper.
The numbers show the magnanimity of the housing downturn and its aftermath.
Homes in the foreclosure process always sell cheaper than nondistressed property. In many markets, foreclosures have been blamed for dragging down home prices overall. In Detroit, for instance, troubled homes had a 72 percent discounted price compared to other homes.
Unemployment is the main reason behind foreclosures and missed loan payments, experts say.
“Historically, unemployment is the number one driver of homeowners getting into trouble and potentially getting foreclosed on,” Daren Blomquist, vice president at RealtyTrac, told 24/7 Wall St.
The areas with a large number of distressed homes were the ones that were hit the hardest by the housing downturn. The good news is that recovery in those markets is well underway.
“We’re in the cleanup phase of the foreclosure crisis,” Blomquist said. “But that cleanup phase does need to happen for the market to get back to full health.”