NEW YORK (Reuters) - The coast-to-coast fire sale in the U.S. housing market appears at long last to have caught a bit of a bid.
Yes, residential real estate remains in the throes of the worst downturn since the Great Depression. Yes, home prices are the lowest in six years and still falling. And yes, it still takes three quarters of a year to sell a house.
Nevertheless, the market may have turned a pivotal corner last month, if a surprising increase in existing home sales is any guide.
Until now, plunging home prices have been keeping many potential home buyers at bay because they were leery of buying an asset that was all but guaranteed to lose value, at least initially.
Now, though, prices appear to have fallen enough in some regions to make buying cheaper than renting, particularly in the West. Add with record low mortgage rates, demand has started to rebound.
“You can now own a home in several areas for less than it costs to rent,” said Mollie Carmichael, senior vice president with John Burns Real Estate Consulting, an Irvine, California-based consultant to the real estate industry.
In Southern California, home sales jumped 50.5 percent from the year earlier as median prices fell 34.6 percent to $278,000 and buyers snapped up foreclosed properties, MDA DataQuick said last week.
Home prices have dropped so much in some areas of California that monthly mortgage payments on single-family detached homes are comparable to apartment rents.
Carmichael said that in California’s foreclosure-plagued Inland Empire, Riverside and San Bernardino counties east of Los Angeles, the average monthly rent for an apartment is $1,157 and the average after-tax monthly mortgage payment on a median-priced single-family detached home is $1,154 — and is projected to decline to $979 by mid-year.
And while distressed properties account for an abundance of sales around the country, the trend is nevertheless helping assuage one of the market’s biggest banes: a huge supply of unsold homes.
Existing home sales across the United States rose 6.5 percent to an annual rate of 4.74 million units in December from a rate of 4.45 million in November, a National Association of Realtors report showed on Monday. That said, in 2008, existing home sales fell 13.1 percent to 4.91 million units — the lowest since 1997.
The median national home price fell 15.3 percent from the year earlier to $175,400, the largest decline since the NAR started keeping records in 1968 and probably the largest since the Great Depression, Lawrence Yun, NAR chief economist, told reporters.
“The report confirms our forecast that sales have bottomed,” said Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania.
“The price discounting on foreclosures is helping draw down on inventories, particularly in the West where lower prices are helping pull in new buyers,” she said.
The lowest mortgage rates in decades are another driver. Interest rates on the 30-year fixed-rate mortgage averaged 5.12 percent for the week ending January 22, nearly 1 percentage point lower than where they were in late November, according to Freddie Mac. A week before, mortgage rates were 4.96 percent, which was the lowest since Freddie Mac started surveying them in 1971.
The NAR said inventory of existing homes for sale fell 11.7 percent to 3.68 million units in December from 4.16 million in November, translating into 9.3 months of supply.
“But, six months is the natural rate of inventories, so supply remains high,” Moody’s Economy.com’s Chen said.
“Nevertheless, the fact that inventory is shrinking is good news,” she said.
Additional reporting by Lucia Mutikani in Washington, Lisa Baertlein in Los Angeles and Jim Christie in San Francisco; Editing by Jan Paschal