Homes sales are picking up, but not fast enough, say experts. What's holding the market back?
Home sales picked up slightly in October and the number of unsold homes glutting the market continued to decline, according to data released today by the National Association of Realtors.
Tempering the good news is the growing incidence of failed contracts and depressed prices, which remain 4.7 below the average for October 2010.
Existing home sales rose 1.4 percent from September to October, while inventory fell by 2.2 percent to 3.33 million existing homes – an eight month supply – at the end of October. (See related video.)A surplus of unsold homes has put a significant drag on the housing market recovery, but the inventory has been gradually trending down since peaking at 4.58 million in July 2008, the association said.
Industry analysts say the most recent data are a sign that the market has stabilized, but at a lower than desired level, and they blame restrictive lending practices for the anemic recovery. Lawrence Yun, chief economist for the association, said “Home sales have been stuck in a narrow range despite several improving factors that general lead to higher home sales.”
Job creation, rising rents and low interest rates all stimulate demand for housing, said Yun, but “many people who are attempting to buy homes are thwarted in the process.”
A growing percentage of prospective sales have fallen apart because homeowners have been denied mortgages, or appraisals of home values have come in below the negotiated price. Job loss and problematic home inspections also caused agreements to fall apart. Contract failures reported by members of the National Association of Realtors jumped to 33 percent in October, up from 18 percent in September and 8 percent a year ago.
The share of home sales from deeply discounted foreclosures and short sales declined to 28 percent in October, down from 30 percent in September and 34 percent in October 2010. All cash sales accounted for 29 percent of purchases in October, essentially unchanged from 30 percent in September and 29 percent in October 2010. Investors purchased 18 percent of the existing homes, while first-time buyers accounted for 34 percent.
A disruption in the National Floor Insurance Program and lower loan limits for conventional mortgage also negatively affected sales in October, said the association, which applauded Congress for last week reinstating the maximum cap for Federal Housing Administration-insured loans for two years. , Moe Veissi, president of the National Association of Realtors, said in a prepared statement, that the reinstated loan limits will help provide much needed liquidity and stability to markets constrained by credit restrictions.
The provision reinstates the FHA loan limits through 2013 at 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets, said the association Loan limits for mortgages backed by Fannie Mae and Freddie Mac remain at 115 percent of local area median home prices up to $625,000. The bill also provides for a short-term extension of the National Flood Insurance Program through December 16, 2011.