Pending home sales fell to a record low in January, reversing a one-month rebound in December.
The new reading of 80.4 represented a 7.7 percent drop from December's level and suggested that the number of home sales are likely to fall again during the early part of the year, due to a worsening economy, according to a new report released Tuesday by the National Association of Realtors (NAR).
"Job losses and weak consumer confidence were a natural drag on home sales,” said Lawrence Yun, the NAR's chief economist, in a statement. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit.”
Homes cheaper to own
Home affordability rose to an all-time high in January of 166.8, the NAR reported. It means that a median-income family earning $59,800 and with the cash for a 20 percent down payment can now afford to buy a $283,400 home. A year ago, it could afford only a $263,300 home.
But buyers aren't snapping them up. Indeed, the NAR estimates that 45 percent of home transactions are distress sales, caused because owners can't afford to hold onto their properties.
Regionally, the pending home sales index only rose in the West, with a slight 2.4 percent increase, while the Northeast notched the biggest decline of 12.7 percent. Pending home sales are closely watched because they offer an early reading on home sales a month or two down the road. The NAR started tracking them in 2001.
Too few buyers
The new reading is a bad sign for housing prices because it suggests that the overhang of inventory will continue for some time.
That's what's happening in the Outer Banks of North Carolina. In January, there were 1,545 residential properties for sale in a 35-mile stretch of beach from Corolla to Nags Head (including Manteo) and only 117 were under contract, according to Gray Berryman, a local real estate broker with Carolina Designs.
Of those, only a quarter are normal sales by individual owners through real estate agents. A quarter are distressed sales and the rest are offered by developers, builders, and real estate agents.
That's a huge inventory that's depressing prices.
"It's going to take years to sell those," Mr. Berryman says. "I tell sellers [of oceanfront properties] all the time, if you sell, you're going to lose $400,000."
His big concern is that if sales don't begin to pick up, housing prices will fall below their real value just as they shot above their real value during the housing boom.