Existing-home sales jump 12%

By Steve Goldstein, MarketWatch
Last Update: 10:53 AM ET 1/20/11
WASHINGTON (MarketWatch) — Sales of existing U.S. homes jumped 12.3% in December, providing an encouraging end to the worst year since 1997, as the collapse in house prices and a wave of foreclosures depressed activity over the 12-month period.

The National Association of Realtors on Thursday said existing-home sales rose from November to a seasonally-adjusted annualized rate of 5.28 million.

Economists polled by MarketWatch had forecast a rate of 4.88 million, and the rate of sales was 2.9% below the rate of December 2009.

November’s sales were revised higher to 4.7 million from the initial 4.68 million reading. The raw, unadjusted figures showed sales rising to 404,000 in December from 355,000 in November.

The jump in the mortgage rate to 4.8%, a rise of roughly a half percentage point from depths, has helped induce on-the-fence buyers back into the market, said Lawrence Yun, chief economist of the NAR. The improving economy also helped confidence, Yun said.

The annual tally of sales was 4.91 million, a drop of 4.8%, based on preliminary data.The trade group said a fuller review of 2010 data would come next month, when it also will announce revisions to activity over three years.

He said the improving economy, as well as rising rental prices, may help lift sales to a 5.2 million rate in 2011.

There’s still a glut of properties on the market, though inventories have been gradually going down. Inventories of 3.56 million homes represented 8.1 months of supply, compared with 9.5 months in November.

The median price of existing homes in December decreased 1% to $168,800, the lowest since February, and November prices were marginally revised lower to $170,200. Over the year, prices edged up 0.3% to $173,000, which is still well below the $198,100 of 2008 and the $219,000 price in 2007. Yun doesn’t expect much price movement in 2011.

Distressed-sale properties, which typically go for discounted prices, accounted for 36% of the market, up from 33% in November.

“Perhaps now that the foreclosure mess is out in the open and banks make it a point to become extra diligent in the foreclosing process, that would help those interested in buying such homes be more comfortable with a purchase,” said Jennifer Lee, senior economist at BMO Capital Markets.

A gradually improving economy is helping to set a floor amid the ample supply of housing and an expected pickup in foreclosures once documentation issues are sorted out. Activity is now barely above the level of June, when closings were required to qualify for a now-expired tax credit.

“Although existing home sales have picked up over the past few months, the fundamentals for housing demand are still weak,” said Michelle Meyer, an economist at Bank of America Merrill Lynch, pointing out the 16.7% underemployment rate. She said sales growth could slow or even reverse over the next few months.

Steve Goldstein is MarketWatch's Washington bureau chief.