Home Sales Drop In April, Foreclosures Declined
WASHINGTON — Fewer people purchased previously occupied homes in April, a troubling sign that the weak housing market remains a drag on the economy.
Sales fell 0.8 percent in April to a seasonally adjusted annual rate of 5.05 million units, the National Association of Realtors said Thursday. That's far below the 6 million homes a year that economists say represents a healthy market.
Purchases made by first-time homebuyers did increase but not nearly enough to signal a housing recovery is on the way. First-time buyers are critical because they typically improve their properties and invest in their communities, a combination that helps home values rise.
Foreclosures, on the other hand, force prices down. They represented more than a third of all sales in April and more are expected in the months ahead.
Since the housing boom went bust, sales have fallen in four of the past five years and hit a 13-year low last year. Declining home prices and low mortgage rates haven't been enough to boost sales this year.
Some who want to buy can't, mostly because banks have tightened lending requirements and are insisting on larger down payments. Many buyers who can qualify for loans are holding off. They are worried that home prices have yet to bottom out.
Economists say it could be years before the housing market fully recovers.
A growing problem is that some sales that are under contract are falling apart. A separate survey from the trade group found 11 percent of Realtors said a contract was canceled because an appraisal came in below the negotiated price. And 14 percent said a contract was renegotiated to a lower price because of a low appraisal.
The median sales price in April was $163,700. That's down 5 percent from the same month one year ago. The median price of a new home is now nearly 31 percent higher than the median price for a previously occupied home – or twice the normal markup.
The gap is largely because of the flood of foreclosures or short sales – when the lender accepts less than what is owed on the mortgage. Those sales are forcing down prices.
Sales of homes at risk of foreclosure fell in April. But they still made up 37 percent of all purchases. And a large number of pending foreclosures are backlogged in the courts or held up by state and federal probes into troubled foreclosure practices by lenders.
A record 1 million homes were lost to foreclosures last year and foreclosure tracker RealtyTrac Inc. expects 1.2 million more will be lost this year.
Another problem for the housing market is the glut of unsold homes. In April, the supply rose to nearly 3.9 million. At last month's sales pace, it would take more than 9 months to clear those homes. Analysts say a healthy supply can be cleared in six months.
The increase in unsold inventory "should continue to weigh on prices," said Dan Greenhaus, chief economic strategist at Miller Tabak + Co.
The situation is much worse when taking into account the "shadow inventory" of homes, economists say. These are homes that are in the early stages of the foreclosure process but, because of backlogged courts or the government probes, have not hit the market for re-sale.
The Mortgage Bankers Association said Monday that about 8.3 percent of homeowners missed at least one mortgage payment in the January-March quarter when adjusted for seasonal factors. That's up 0.7 percent from the previous quarter.
Sales fell across most regions of the country. In April, sales declined 7.5 percent in the Northeast, 1.6 percent in the West and 1 percent in the South. But they rose 5.7 percent in the Midwest.
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DEREK KRAVITZ 05/19/11 03:56 PM ET Associated Press