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Home sales up. Has the market bottomed out?

Sliding prices helped push sales up for the third straight month in June. But foreclosures are expected to rise again.

By Ron SchererStaff writer / July 23, 2009

A house is seen for sale Thursday in Blue Island, Ill. The US housing market has started to recover from the most far-reaching crisis since the Great Depression, data released Thursday shows.

M. Spencer Green/AP

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New York

For months, the housing market has been one of the weakest links in the US economy.

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Now, in a good sign for the economy, it appears that’s no longer the case.

Another sign of this improvement came on Thursday when the National Association of Realtors (NAR) reported that in June, for the third month in a row, sales of existing homes rose and inventory continued to decline.

“Housing has been overhanging the economy for the last 2-1/2 years. Now, we are seeing the bottom has been reached,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa. “This is good for consumer confidence. This is good for the markets.”

The stock market rose in response to home sale reports Thursday morning, with the Dow Jones industrial average up 201 points at 9,083.

One of the main reasons for the improvement in home sales is the continuing slide in prices. According to the NAR report, the median existing-home price was $181,800 in June, down 15.4 percent from a year ago. On a national basis, distressed properties represented some 31 percent of all sales.

“We’re seeing price drops in many of the bubble markets of 30 percent to 50 percent off 2005 peak prices,” says Jack McCabe, a housing expert at McCabe Research & Consulting in Deerfield Beach, Fla. “So homes are now much more affordable.”

But foreclosures may continue to increase, especially as unemployment, now at 9.5 percent, goes up.

Foreclosures may pick up again

There was mixed news on the foreclosure front Wednesday. DataQuick, a LaJolla, Calif., real-estate research firm, reported that foreclosures proceedings in California fell 8 percent in the April to June quarter compared with the previous quarter. However, it was still 2.4 percent higher than last year’s second quarter.

And DataQuick expects foreclosure activity to pick up again. Lenders and mortgage service companies are hiring people to process more foreclosures, the firm says. “That means foreclosure numbers will probably shoot back up in the third quarter,” said John Walsh, DataQuick president, in a statement.

Many foreclosed homes are being snapped up by professional long-term buyers, says McCabe. He disagrees with those who say these buyers are "vultures buying houses that are cheap."

“These are, by and large, case buyers and they are looking to place the houses back in the rental pool," he says. In past downturns, he adds, this has signaled a bottom to the marketplace.

First-time buyers

In addition, NAR data shows first-time buyers in June accounted for 29 percent of all sales, the same as May. The number of buyers looking for homes rose 12 percentage points compared with June 2008.

“We’re seeing first-time buyers taking advantage of the $8,000 tax credit,” says McCabe. “These people have been priced out of the market for the last five years."

Another factor helping new buyers is the relatively-low mortgage rates. According to Freddie Mac, the national average commitment rate for a 30-year fixed rate mortgage was 5.42 percent in June, up from 4.86 percent in May, but down from 6.32 percent in June of 2008.

In fact, McCabe says home prices have now dropped to the point where they are competitive with rentals. “When home ownership rivals rental prices, this is a positive sign for the market,” he says.

The buying has helped reduce inventory. According to NAR, inventory is down almost 15 percent from a year ago.

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