Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Existing-Home Sales Increase In February

Written by Than Merrill

The expansion of the economy has had a positive impact on the entire hosing sector. Look to cities like Austin or San Diego if you think otherwise. There is really no denying the progress that has been made between now and the depths of the recession. Things are definitely headed in the right direction. The recent increase in existing-home sales is evidence in and of itself. Over the course of a month, existing-home sales increased a modest 1.2 percent, despite inclement weather.

According to the National Association of Realtors (NAR), home sales increased to a seasonally adjusted annual rate of 4.88 million. February’s numbers are, therefore, up from the previous month. January saw sales reach 4.82 million. While sales volume represents a step in the right direction, they are slightly down from last year. The average rate of monthly sales peaked at 4.92 million in 2014.

Nonetheless, an increase in existing-home sales is encouraging. It may also be said that existing-home sales could have been stronger if it wasn’t for severe winter weather. Bad conditions practically stalled a lot of housing markets in colder areas like Chicago. Weather is also to blame for a decrease in homebuilding in some areas, which also constricts the market for some buyers. Sales in the Northeast fell 6.5% from January while sales in the Midwest were unchanged.

During February – when home sales increased ever so slightly – median prices also exhibited an increase from last year’s numbers. The median home price for existing-homes in February reached $202,600. At that rate, home prices increased nearly 8 percent over the course of a year.

Despite the increase, Lawrence Yun, the NAR’s chief economist, hints at a stagnation within the market.

“Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” he said. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”

As recently as February, available inventory was represented by a 4.6-month supply. The number was unchanged from January, but a half point below this same time last year. In order for the housing market to maintain balanced, 6 months of inventory are typically required, at least on a national level.

Unfortunately, it doesn’t look as if a new wave of inventory will be introduced anytime soon. There is one factor that prevents homeowners from selling: equity, or lack thereof. Too many owners owe more on their homes than they are actually worth. According to CoreLogic, “5.4 million homes, or 10.4 percent of all homes with a mortgage, were still in a negative equity position, or ‘underwater,’ in the fourth quarter of 2014.”

Inventory levels are hampered even more when you consider that those with equity may not have enough to do anything with it. According to data presented by CoreLogic, “of the 49.9 million U.S. homes with a mortgage, approximately 10 million (20 percent) have less than 20 percent equity, and 1.4 million have less than 5 percent.” With less than 20 percent equity in an asset, homeowners still can’t afford to sell. At that rate, they risk not only loosing money, but their chances of receiving mortgage approval on a subsequent home is less than encouraging.