November 29, 2011 (Chris Moore)
Existing home sales increased unexpectedly in October, a possible sign that falling prices and low mortgage rates may be attracting buyers, but a huge jump in contract failures is holding back a sales recovery according to the National Association of Realtors® (NAR).
Thirty-three percent of NAR members reported losing a sale due to a contract failure in October, up from 18 percent in September. Contract failures first spiked in June, climbing from four percent in May to 16 percent in June and remained at that level until September. In October of last year, eight percent of NAR members reported losing sales due to contract failures.
Lawrence Yun, chief economist of NAR, stated, “Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions. Many people who are attempting to buy homes are thwarted in the process.”
Most contract failures are caused by declined mortgage applications or low appraisals but can also be caused by home inspection problems and employment losses.
“Other recent factors include disruption in the National Flood Insurance Program, and lower loan limits for conventional mortgages, which paradoxically force some of the most creditworthy consumers to pay unnecessarily higher interest rates,” Yun said.
Despite the spike in contract failures, total existing home sales, which include single-family homes, townhomes, condos, and co-ops, increased 1.4 percent to a seasonally adjusted rate of 4.97 million in October, up from a revised 4.90 million in September. Sales were 13.5 percent higher than the seasonally adjusted 4.38 million units in October 2010.
Still, Yun views the contract failures as lost opportunities and a hindrance to a housing recovery. “A higher rate of contract failures has held back a sales recovery. Contract failures reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago, so we should be seeing stronger sales,” Yun added.
Home prices continued to decline as the national median existing home price fell from $165,400 in September to $162,500 in October. The median home price in October was 4.7 percent lower than a year ago.
Distressed property sales accounted for 28 percent of all existing home sales in October, down from 30 percent in September and down from 34 percent in October 2010. Foreclosure sales made up 17 percent of all existing home sales while short sales accounted for 11 percent of all existing sales.
Cash sales accounted for 29 percent of all sales in October, down from 30 percent in September, while investors purchased 18 percent of the homes sold in October, down from 19 percent in September.
There were fewer homes for sale in October as housing inventories dropped 2.2 percent to 3.33 million homes which represents an 8.0 month supply of homes, down from 8.3 months supply in September.
Regionally, existing home sales in the Northeast declined 5.1 percent to an annual pace of 750,000 sales in October and are 1.4 percent higher than October 2010, while existing home sales in the Midwest increased 2.8 percent to a rate of 1.10 million annual sales and are 19.6 percent above year ago levels.
In the South, existing home sales rose 2.1 percent to an annual pace of 1.94 million sales in October and are 14.1 percent above October 2010 levels, and in the West, existing home sales increased 4.4 percent to an annual rate of 1.19 million sales in October and are 15.5 percent above year ago levels.
The median price in the Northeast was $224,400, a decline of 5.5 percent from a year ago, while the median price in the Midwest was $132,600, down 4.7 percent from October 2010.
The median price in the South was $145,700, a decline of 1.6 percent from a year ago and in the West the median price was $207,500, down 1.6 percent from October 2010.
Tags: existing home sales, investors, distressed property sales, declining prices, low appraisals, cancelled contracts, median home price, contract failures, purchase cancellations