The National Association of Realtors (NAR) reported a 2.9 percent increase in the number of homes sold in February over January's total. The total brings the seasonally adjusted pace of sales to 5.03 million, up from January's rate of 4.89 million. The news marks the first month-over-month rise since July 2007.
"These are signs that housing's problems are being addressed, but I wouldn't break out the champagne yet," said Northern Trust chief economist Paul Kasriel. "We still have a ways to go."
The news, however, did not come without its drawbacks. Amidst the increase in home sales, the price of existing home sales decreased. The median price of homes sold in February was $195,900, down from $213,500 a year ago. The change represents an 8.2 percent decrease in the price of homes—the largest year-over-year price drop on record. Prior to the housing slump, a price decrease had not been recorded in over 11 years.
And still, despite the increase from January, the number of home sales in February was down 23.8 percent from a year ago. The NAR cautiously warned that they do not expect any significant improvement until the second half of 2008. Although the number of homes sold in February actually beat the NAR's predictions, the price decline was steeper than expected. It is estimated that there are approximately four million homes on the market which at our current sales pace would represent a 9.6 month supply of homes. That number is down from a high of a 10.2 month supply in December 2007.
From a national standpoint, the news looks fairly encouraging. However, much of the gain in sales pace can be attributed to the northeast region of the country, which saw an 11.3 percent rise in the number of homes sold over January and a 0.4 percent rise in the median price. In the West, median home prices fell by 11.3 percent in January and still saw a 1.1 percent reduction in the number of homes sold.
The news comes as bittersweet for some. Although this hints at a possible turnaround in the real estate industry, it comes as a hefty cost for some homeowners. The current median home sale price is equal to the level in May of 2004. For long-time homeowners, the real estate downturn likely means a decrease in home equity and a longer time on the market for those selling.
However, people who bought near the peak of the boom are now struggling with increasing adjustable rate mortgage payments and mortgage balances that are higher than what their home is worth.
Fortunately, many of the baby boomers are long-time homeowners and will be able to ride out the storm relatively unscathed. The turnaround will likely not occur until sellers are realistic about what their home is actually worth. The recent price reductions indicate that some sellers are coming to the realization that they need to reduce the price of their home if they want to sell it.
While the news is unwelcome to sellers eager to get top dollar for their home, it could mean that the market is seeing the end of turmoil and that brighter days are on the horizon—news that everyone can appreciate.