By Orlando Rodriguez
Market watchers should expect that today’s Existing Home Sales report will show gains in the nation’s real estate sector, a result of low home prices and record low interest rates.
After posting slightly lower sales totals in February, this month looks to be more promising, as delayed contracts are expected to close and the warmest March on record ushered in the normally busy spring season a month early.
Last month, pending home sales were up 9.2 percent from February 2011. Many of these contracts were set to close in March which should contribute to sales gains.
The Existing Home Sales indicator, set to be released at 10am EST by the National Association of Realtors, is one that is watched closely by economists, as no economic recovery has ever taken place without the housing sector playing a significant role.
For the past few months, large inventories of distressed housing nationwide have kept home prices stagnant, the median price standing at $156,600 nationwide last month.
But with falling interest rates now at record lows, buyers are expected to flood the market over the next few months, taking advantage of unprecedented favorable conditions.
According to Fannie Mae, the average rate for a 30-year fixed rate mortgage now stands at 3.88 percent, only one percentage point above its all time low of 3.87 that it reached in February.
Fannie Mae’s 15-year fixed mortgage now stands at 3.11 percent, an all time record.
Higher rents also will play a role. The nationwide vacancy rate stood at 5.2 percent, the lowest in more than a decade, according to a Bloomberg News report back in January.
Tight credit during the financial crisis caused many potential homeowners to delay purchases and rent instead, but rising rents should push them back into a favorable buyers market.
Another factor that should drive sales higher this month is a report that new home starts were down for March, falling 5.8 percent according to the Commerce Department.
Builder confidence is down as well, falling for the first time in seven months. Both are indicators of both a glut in existing housing stock that needs to be sold before more new homes are built.
The National Association of Home Builders Chief Economist David Crowe felt that competition from foreclosures is playing a major role in slowing down the market for new homes.
“Interest expressed by buyers in the past few months has yet to translate into expected sales activity,” he said. “[it] is reflective of the ongoing challenges, particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”
Signs of buyer browsing, particularly for new homes are usually an indication that there are better price alternatives among existing homes.
“Consumers are still very hesitant to go forward with a purchase,” said Barry Rutenberg, chairman of the National Association of Home Builders. “Our members are realigning their expectations somewhat until they see more actual signed sales contracts.”
Either way we should expect sales of existing homes to rise between now and the summer.