Pre-Owned Home Sales See a 12-Year Low While Foreclosures Increase

The housing market is trying to stay afloat with news that pre-owned home sales dropped 5.3% to 4.49 million in January, which is the lowest sales pace in 12 years. Although recent numbers from the National Association of Realtors show that overall home prices have dropped 14.8% in the past year making this one of the most affordable periods in decades, home sales continue to decline.

Why Home Sales Haven’t Picked Up

One of the reasons that economists believe home sales haven’t picked up in the past month despite the decrease in prices is homebuyer uncertainty regarding the incentives associated with the Obama administration’s stimulus package. Also, many homeowners and banks are simply waiting until market conditions improve before putting houses up for sale.

But another reason that the numbers could be low is due to the fact that the NAR’s report represents sales that closed in January. Because it takes 6-8 weeks to close after a contract has been signed, the most recent sales did not show up in the report.

How Can Sales Improve?

Economists believe that improvement in home sales will lie partially in the hands of the $8,000 first-time-buyer tax credit. This incentive alone is projected to boost sales by around 900,000 this year. Also, as distress properties increase, sales will likely increase. Just in January alone, about 45% of sales involved short sales or homes in foreclosure. Buyers are flocking to distressed properties for better negotiating potential, so as more sellers reach high levels of desperation, more buyers will take advantage of deep discounts.

The hope is that in time, prices will drop enough to encourage people to buy. However, in the meantime, both sellers and economists may have to worry a little longer.