Existing Home Sales

April 14, 2011

While the U.S stock market enjoyed an upward trajectory over the past 18 months, the U.S. housing market continues to experience its ups and downs. Enacted in the beginning of 2009, the American Recovery and Reinvestment Act provided a tax credit to home buyers. At the time, U.S home sales were in a freefall, but this credit helped reignite the market. That was a short-lived phenomenon, however. Following the tax credit’s expiration in 2010, home sales dropped precipitously again. Average sales prices have also been on a steady decline since July 2010, and now stand at their lowest level since 2002. Interestingly, cash sales (33% of all existing home sales) reached a record level in February 2011, as homebuyers and investors take advantage of lower prices.

The real estate market continues to show stress in 2011. The most recent February report showed a sharp drop in existing U.S. home sales, which fell well below consensus expectations. The number of previously owned homes on the market rose 3.5% to 3.49 million. That represents nearly 9 months of supply based on the current rate of sales. Coupled with the “shadow” housing inventory of bank-owned and potentially foreclosed homes, that number increases to nearly 5.3 million homes, or over 13 months of supply.

Without the enticement of the housing tax credit and the increasing stock pile of foreclosures and existing homes on the market, the U.S residential real estate will continue to struggle for the foreseeable future.