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Existing home sales slip: tight inventory, dip in cash buyers

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Existing home sales fell for the month as inventory levels remain tight, but this has led to improving home values and dramatically reduced days on market for American homes.

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Existing home sales slip in March

Existing homes sales fell 0.6 percent in March according to the National Association of Realtors (NAR) which noted continued tight inventory levels which “continued to pressure home prices,” and while the monthly data slipped, sales remain 10.3 percent above March 2012. For 21 consecutive months, sales have been above year-ago levels and for 13 consecutive months, home prices have been above year-ago levels.

Dr. Lawrence Yun, NAR chief economist, said there is more demand than supply in the current market. “Buyer traffic is 25 percent above a year ago when we were already seeing notable gains in shopping activity.”

Further, Dr. Yun noted, “In the same timeframe housing inventories have trended much lower, which is continuing to pressure home prices. The good news is home construction is rising and low mortgage rates are continuing to keep affordability conditions at historically favorable levels. The bad news is that underwriting standards remain excessively tight, while renters are getting squeezed by higher rents.”

Inventory levels actually slightly up

Although the trade group and other real estate insiders cite tight inventory levels as holding back sales, inventory levels rose from a 4.6 month supply in February to a 4.7 month supply in March, so from the outside it may appear that this is good news, inventory remains tight and in many metro areas has led to bidding wars.

Inventory levels rose slightly in March, but remain 16.8 percent below just twelve months ago.

“The inventory improvement last month results from a seasonal gain, but conditions continue to broadly favor sellers. We need a housing supply of over 6 months to have a generally balanced market between home buyers and sellers, but it’s unlikely we’ll get there without greater increases in housing construction,” Dr. Yun said.

Median home price up 11.8 percent this year

Compared to March 2012, the national median existing-home price for all housing types rose 11.8 percent to $184,300. This represents the largest annual increase since November 2005.

Distressed homes accounted for 21.0 percent of sales in March, down 4.0 percent for the month and 8.0 percent for the year. Fully 13.0 percent of sales were foreclosures and 8.0 percent were short sales. Foreclosures sold for an average discount of 15 percent below market value in March, while short sales were discounted 13 percent.

Time on market fell dramatically

NAR reports that the median time on market for all homes fell from 74 days in February to only 62 days in March, a dramatic decrease since the median time on market of 91 days in March 2012.

Short sales were on the market for a median of 81 days, while foreclosures typically sold in 46 days and non-distressed homes took 66 days. Thirty-seven percent of all homes sold in March were on the market for less than a month.

Cash sales down for the month

Unchanged for the month, first time buyers remain at 30 percent of home purchases, but all-cash sales fell 2.0 percent from February to 30 percent of transactions, and individual investors, who account for most cash sales, purchased 19 percent of homes in March, down from 22 percent in February and 21 percent in March 2012.

Regionally, existing-home sales in the Northeast were unchanged at an annual rate of 630,000 in March and are 6.8 percent above March 2012. The median price in the Northeast was $237,000, up 3.0 percent from a year ago.

Existing-home sales in the Midwest rose 1.8 percent in March to a pace of 1.16 million and are 14.9 percent above a year ago. The median price in the Midwest was $141,800, up 7.8 percent from March 2012.

In the South, existing-home sales slipped 1.5 percent to an annual level of 1.95 million in March but are 12.7 percent above March 2012. The median price in the South was $161,700, which is 10.4 percent above a year ago.

Existing-home sales in the West declined 1.7 percent to a pace of 1.18 million in March but are 4.4 percent above a year ago. With notably constrained inventory conditions, the median price in the West rose to $258,100, up 26.1 percent from March 2012.

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