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Sales of existing homes rose in 2011, driven in part by lower prices created through foreclosure.
“2011 Worst Year Ever for New Home Sales”
“Existing Home Sales Show Market Rebound in 2011”
After reviewing conflicting year-end headlines, it’s tough to know how to feel about 2011 home sales.
The truth is that we’re still in the midst of a bad time for the housing market. But 2011 brought some good news to the forefront, raising hopes that a housing recovery is in the works.
Sales of existing homes rose 1.7 percent in 2011 to 4.26 million units, according to the National Association of Realtors (NAR). The final quarter of 2011 showed three consecutive months of improvement, prompting some analysts to announce a slow turnaround in the housing market.
“The pattern of home sales in recent months demonstrates a market in recovery,” said Lawrence Yun, chief economist for the National Association of Realtors.
Several factors have spurred the uptick in existing home sales. Following six consecutive months of job growth, the December 2011 unemployment rate fell to its lowest level in almost three years. As more folks return to work, more loan applicants are able to meet mortgage criteria.
Record-low interest rates are also drawing buyers into the market. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage fell to an all-time low of 3.96 percent in December.
Low interest rates have been accompanied by a steady decline in home prices, which makes it an undeniably smart time to enter the market. According to NAR, the national median sales price for existing homes fell to $166,100 in 2011, down from $172,900 in 2010 and $172,500 in 2009.
Unfortunately for builders, 2011 was the worst year on record for new home sales. The Commerce Department reported that a mere 302,000 new homes were sold last year, less than half the amount economists say must be sold for an economy to be considered “healthy.” The 2011 figure reflects a 6.2 percent drop from the number of new homes sold in 2010.
Why are new home sales lagging in the same environment that’s creating more existing home sales?
Builders of new homes often can’t price their properties cheap enough to compete with distressed properties. NAR found that foreclosures sold at an average discount of 22 percent in December, while short sales closed 13 percent below market value.
Big numbers of buyers snapped up distressed bargains in 2011. Foreclosures and short sale properties accounted for 32 percent of sales in December.
Meanwhile, 157,000 new homes sat on the market in December. At the year-end sales pace, it will take approximately 6.1 months to clear the new home backlog.
What’s ahead for the real estate industry? Forecasts as are contradictory as headlines, and vary in their levels of optimism.
Enthusiastic experts point to job creation and a slow rise in existing home sales as evidence of a housing rebound. Glass-half-empty predictors refuse to jump on the recovery bandwagon until the glut of inventory is reduced and prices begin to rise.
It’s tough to deny that pockets of recovery are definitely developing. Nationwide recovery will certainly take more time, but hopefully a majority of 2012’s year-end headlines will reflect a clear and positive direction for the industry.
Photo courtesy of respres
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