Housing Market Recovery Continues to be Challenged by an Oversupply of Properties

Sales of previously owned U.S. homes rose to an 11-month high in December and the supply of properties on the market dropped to a near 7-year low, an industry group said on Friday, pointing to a nascent recovery in the housing market.

According to Jacob Oubina, Senior U.S. Economnist, RBC Capital Markets: "We have to keep in mind that milder December weather had something to do with the pickup. If you look at the report the supply fell, but what that doesn't take into account is the shadow overhang, the distressed side of the market, people that are basically delinquent on their mortgages and haven't gone through foreclosure yet. That pipeline is worth seven million units, and represents about 20 months of supply. The distressed is still a huge problem. When you look at home prices overall in the U.S. I think they're still going to decline modestly in 2012."

According to Kathy Lien, Director of Currency Research, GFT Forex: "Home sales were slightly weaker than expected but still relatively firm and the most encouraging aspect of the report was the rise in prices. Inventory is starting to move and home owners are beginning to feel more confident about asking more - which is a healthy trend for the housing market. However, the labor market needs to stabilize before the housing market can fully recover. The heydays of the housing market are far behind us and it will be a long tough road to recovery. In fact, we still believe that housing will remain depressed for most of the year and the only way the Federal Reserve can help is by keeping interest rates low and monetary policy easy."

Housing Data Points to Slowdown in Sales

January 25, 2012

Reuters - Signed contracts for the sale of existing U.S. homes retreated from a 1-1/2-year high in December and demand for home loans fell last week, pointing to a moderation in home sales after recent hefty gains.

But the reports on Wednesday did not change perceptions that a nascent recovery is under way in the housing market, which continues to be challenged by an oversupply of properties.

"This is potentially negative for January existing home sales although the two do not always go hand in hand," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "So does this mean the story has changed and housing is back in the dumps? Nope."

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, dropped 3.5 percent to 96.6 in December, after hitting a 19-month high in November.

Economists had expected signed contracts for sales, which lead existing home sales by a month or two, to fall by only 1.0 percent. However, sales were up 5.6 percent in the 12 months to December.

A glut of unsold homes is weighing on house prices and frustrating the sector's recovery, even though mortgage rates are near record lows. Home resales have risen for three straight months.

The Federal Reserve has suggested a number of ways other policymakers could step in to help the beaten-up market, including giving government-controlled mortgage finance firms Fannie Mae and Freddie Mac a bigger role in refinancing loans.

Some officials at the Fed say the central bank should consider further purchase of mortgage-backed securities as a way to help spur a stronger recovery, but no action is expected at the end of the Fed's first policy meeting of 2012 later on Wednesday.

"I don't think that lower mortgage interest rates are going to help much right now," said Robert Dye, chief economist at Comerica in Dallas. "That's not where the bottleneck is, and that is in two places: credit availability and the processing of paper work."

Lenders have adopted stringent requirements for potential homeowners, demanding down payments of as much as 20 percent, and contract cancellations have averaged about a third over the past few months.

Applications for home purchase loans declined 5.4 percent last week after two straight weeks of sturdy gains, the Mortgage Bankers Association said in a separate report.

Another report showed house prices measured by the Federal Housing Finance Agency rose 1 percent in November from October.

"We are encouraged by the pop in prices as it may be a signal of further stabilization in the housing market and evidence that the erosion in home prices may be nearing an end," said Millan Mulraine, senior macro strategist at TD Securities in New York.

However, prices were down 1.8 percent in the 12 months to November, indicating the recovery in the housing market would be painfully slow.