Sales of existing homes in October beat expectations, registering a gain of 1.4 percent from the previous month, but that number masks a market that is heavily weighted to the low end. Realtors say they expect sales to bounce around the same levels for the rest of the year, with a very slight annual gain from 2010. This sales stabilization of sorts would suggest that home prices might soon do the same, especially as inventories come down, but that has not been the case.
Home prices continue to drop, especially for single family homes, which saw a hefty 5.8% price drop in October from a year ago (always measure prices year-over-year due to their heavy seasonality). The reason is that only one price segment of the market is really selling, and that segment includes the most distressed, discounted homes.
"We are getting a bifurcated recovery, the lower end seeing strong activity, while the upper end still sagging and showing very little interest," said the Realtors' chief economist Lawrence Yun.
Home sales in the $0-100,000 range were up a hefty 24 percent from a year ago, part of that due to last year's depressed numbers following the expiration of the home buyer tax credit, but much of it due to the fact that one third of the market is now foreclosures and short sales, and that's generally the range for those properties. Sales were also up 13 percent in the $100-250,000 range, but after that the party quiets down considerably. Sales were up just over one percent in the $250-500,000 range, and down 9 percent above that.
Obviously it's important to clear out the distressed properties in order to return to a healthy housing market, and that appears to be happening, slowly but surely, but the move-up market is still in trouble. The share of higher-priced homes is smaller, but in September it was still showing healthy gains. Sales were up 11.5 percent in September in the $750-1m range. What changed?
Loan limits for Fannie Mae and Freddie Mac dropped October first, and that may have affected some of those higher end sales, but uncertainty in the economy and the jobs market is also weighing more heavily on higher-end buyers whose confidence is influenced to a greater degree by fluctuations in the stock market and overseas debt crises. October also saw a huge jump in the percentage of Realtors experiencing at least one cancelled contract. 33 percent! That's up from 18 percent in September and a norm of around 6-8 percent.
The Realtors blame the spike in cancellations on declined mortgage applications, lower-than-anticipated appraisals, employment losses and a disruption in the national flood insurance program. They didn't mention the elephant at the closing table, which is historically weak consumer confidence and a continuing imbalance in supply and demand.