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Kimberly Amadeo

Homes Sales Show a Shred of Good News

By September 21, 2011

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Existing home sales rose 7% in August, to an annual rate of 5.03 million homes. This is 18.6% better than a year ago, when sales were at a rate of 4.24 million. What drove this increase?

Lower prices, driven by an increase in foreclosures. Although this sounds terrible, what it really means is that the housing market is slowly moving through the backlog of homes somewhere in the foreclosure process. This shadow inventory will keep home sales depressed until it's cleaned up.

Lower prices, when combined with today's higher rents, should help home sales continue to increase. The median price of houses, townhomes and condos fell to $168,300 in August, 5.1% lower than a year ago. Foreclosures and short sales made up about a third of these sales, just like a year ago.

The other shred of good news is that investors comprised 22% of all buyers. This is up from July, when only 18% of homebuyers were investors. During the housing boom, they comprised 30% in some areas.

More good news --  inventory of houses for sales fell 3%, to 3.58 million homes, representing just an 8.5-month supply. This is down from the 9.5-month supply recorded in July.

RealtyTrac reported that there were 228,098 foreclosures filing in August, up 7% from July but still down 33% from a year ago. This means banks are slowly moving through the foreclosure backlog, or shadow inventory. As of April 2011, Corelogic reported that it declined to 1.7 million units, down from 1.9 million units a year ago. At current sales rates, this is a five month supply. When combined with the 8.5 month supply of home for sale, it's still a whopping 13.5 month supply in the pipeline. But, at least it's declining, not growing.

What It Means to You

Banks are still sitting on cash, which they are using to write down foreclosures. Many businesses had record earnings this year, but are using the money to increase dividends or buy back stock instead of reinvesting in business or hiring workers. Other investors are buying gold or Treasuries, waiting for "the right time" to reinvest in riskier assets -- like housing.

Yes, housing used to be  a safe investment. One day, it will be again. If you are thinking of selling your home, wait. (Not good advice for the economy, but it is for you!) It might take another year for investors to regain confidence in housing, and for the market to turn, but the decline in the shadow inventory means the trend is headed in the right direction. And when it does turn, I predict the money will come rushing in.

Related Articles

If you are selling your home, here are some great tips from the About.com guide to Homes, Elizabeth Weintraub.


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