The National Association of Realtors (NAR) announced on January 25, 2010 that existing home sales in December 2009 fell -16. 7% from the previous month to an annual rate of 5.45 million, which was a larger decrease than was expected. However, Closings were still +15.0% above the December 2008 level of 4.74 million homes.
In thinking about existing home sales data, it is important to remember that the NAR home sales data actually represents home closings. Almost all the homes closing in December were actually sold, that is the purchase agreements were signed, in previous months, typically 6-to-8 weeks earlier. New sales contracts signed are picked up in the association’s Pending Home Sales Report.
Since the first-time home buyer tax credit was set to expire on November 30, 2009, we should anticipate existing home sales (Closings) to fall sharply after November, because home buyers can’t stop on a dime and then restart as soon as the credit is extended.
This is exactly what happened even though the Tax Credit was extended and signed by President Obama on November 6, 2009, because it takes a while for a buyer to gear up to purchase a home, and then another 6-to-8 weeks to work through the loan application, home appraisal, and closing procedures.
Especially notable in this report was the continuing decline in the inventory of homes for sale, which fell another -6.6% to 3.29 million homes, representing a 7.2 month supply of homes. A supply under 7 months is usually consistent with stabilization in prices.
Excessive inventories in prior months had been a major cause of falling home prices. But the average home price in December was $225,400, which was 3.6% higher than the year-earlier level.
According to Vicki Cox Golder, NAR President, “There’s a shortage of lower priced homes for sale in much of the country, resulting in multiple bids in some areas.
As home prices firm, consumer confidence should rise, further enabling the economic recovery.
So this report was not completely unfavorable. There were a few silver linings.
