There was a rise of 12.8% on existing home sales within the month of December. This meant that the increase was 5.28 million units, and the forecast was a rise of about 4.1% or about 4.87 million units (The National Association of Realtors is responsible for collating these figures). In the event, the actual figures have surpassed expectations. On the other hand the supply of homes in December fell to 8.1 million units. This is the lowest recorded level since March in the previous year.
An overview of the trends
This increase in home sales has been crucially broad bases. For example the single family home sales increased by 11.8% while the multiple family occupancy unit sales rose by 16.4%. From a geographical perspective the sales in the Northeast increased by 13.0% while those in the Midwest rose by 11.0%. In the West the rise was 16.7% while the South experienced an increase of 10.7%. From a year-on-year point of view, the sales went down by 2.2%. Nonetheless the sales were lower in December of this year when compared to the situation last year in virtually all the regions. The only exception was the West where the figures were even. Some pointers include:
- It would appear the tax credit for 1st time buyers is losing its distortion on the market. The trend has followed the ones seen in the “cash for clunkers” program. For a short period of time sales were boosted but there was no long term growth. The sales tend to bottom at about 5 million units in 2008. However, there were further reductions during the severe part of the recession between late 2008 and early 2009. The tax credit then pushed them higher than normal. Some of the issues identified include a distressed market and the tax credit.
- The prices of homes have experienced a significant fall in the past four years. Looking at the 12-month medium price, it is clear that a decrease of 23.1% has been experienced since 2006 when they prices were at their high point. The price series is not seasonally adjusted and therefore the 12-month median price seems like a good figure to use. On an annual basis, the drop in price was about 5.8%. Last year there was an element of stability but the downward trend is beginning to take hold this year.
- The legal framework in which companies are operating has reduced the number of foreclosure sales within certain states. The NAR figures do not account for distressed sales in many states. Therefore any substitution effect will appear as a bump. This occurs when buyers opt to wait for foreclosures instead of going through the MLS system.