Tuesday, June 23, 2009

Existing Home Sales Rise But Prices Fall Sharply

"Existing home sales rose in May, as increasingly affordable home prices and a first-time tax credit attracted hesitant buyers.

The National Association of Realtors reported that existing home sales ticked up 2.4% last month to a seasonally adjusted annual rate of 4.77 million units compared to the downwardly-revised rate of 4.66 million in April.

The sales missed expert forecasts of 4.82 million annual units, according to a consensus estimate of analysts compiled by Briefing.com, and are off 3.6% from the 4.95 million-unit pace 12 months ago.

The median price of homes sold in May was just $173,000, a 16.8% year-over-year drop."

To read the rest of this story from Money/CNN, go here.

This news is non-news, meaningless static in the market. When prices fall, more things get sold. I've written about this before many times. This is also basic common sense.

The keys to a healthy real estate market will be PRICE STABILIZATION and rising builder profit margins. Both are obviously still falling sharply.

The fact that sales are up is good news for people buying and especially selling properties. Sales mean commissions. It also means excess inventory is being sucked up and used.

But this news today really has little impact on the overall problems facing the real estate industry. When prices fall, inventories grow because properties are held back from sale. Falling prices means more short sales which devastate the ability of mortgage lenders to issue new paper. These are the prime problems. Too many properties and too many problems getting new mortgages on them.

Falling prices also destroys personal wealth and more importantly the perception of it, crucial if the U.S. economy is going to show any type of rebound soon.

Robert J. Abalos, Esq.