Discounts Expected in Spring Housing Market

The Wall Street Journal

22 March   2011

Sales of previously owned homes fell sharply in February, setting the stage for steep discounting in the spring market.

The National Association of Realtors reported Monday that existing home sales dropped 9.6%, and the median price, $156,100, was the lowest since February 2002.

The silver lining, say economists, is that bargain prices, coupled with low interest rates, might finally spur some buyers off the fence as the real-estate industry prepares for its busiest season. Even without the $8,000 federal tax credit that stoked sales last spring, industry watchers predict a larger number of transactions this year.

“The job market is getting better and that will make people feel more confident about their income-earning prospects,” said David Berson of the PMI Group. “You need that confidence to buy a house. Household formations are also very important. … Kids may have moved back in with their parents, or two people may have moved in together, because of job concerns. Now they can move into their own place.”

Still, Monday’s data painted a picture of pain and price declines that have spared no region.

“The housing market is still clearly years away from staging any meaningful recovery,” Toronto-based Capital Economics wrote in a note to clients.

February sales data due Wednesday are expected to show that the market for new homes is just as lackluster as that for existing dwellings.

Some builders of new homes are increasing discounts on residences and boosting commissions to brokers.

“They don’t do that if things are going well,” said Alex Barron, a home-builder analyst with the Housing Research Center, an independent sell-side research firm. “The level of desperation in the builders is just going to increase substantially in the next two months, which is the heart of the spring selling season.”

Overall, February’s weakness could have been driven by bad weather, deals canceled over lowball appraisals and a higher number of distress sales, according to the National Association of Realtors.

A third of transactions were all-cash sales, and investors accounted for 19% of February sales activity, down from 23% in January. Low prices in many markets also reflect a new reality as sellers finally give in and reduce the asking prices on their homes in hopes of a fast deal.

“After three years of the housing downturn, people are becoming much more realistic in terms of valuing their homes,” said Lawrence Yun, the National Association of Realtors’ chief economist.

In Atlanta’s upscale Buckhead neighborhood, Natasha Swann put her family’s five-bedroom colonial on the market about six weeks ago. The $1.6 million asking price won’t recoup the roughly $200,000 that Ms. Swann spent on renovations such as finishing the basement and adding a bedroom. Still, the 41-year-old mother of three is eager to sell because she is building a bigger house nearby.

After six showings, she is optimistic the home is priced competitively. “We had to be kind of aggressive” about making the price attractive, she says. “We don’t know where the market’s going, and I’m not going to wait a long time in an uncertain market.”

Economists say the number of distressed sales will continue to rise, and put pressure on prices. But mortgage rates, which were trending upward during the fall and winter months, have been falling in recent weeks amid global turmoil over the crises in Japan. Rates for 30-year loans were well below 5% last week.

“Few think mortgage rates are going lower,” said Moody’s Analytics chief economist Mark Zandi. “It’s more likely they will be 6% than 4% next spring. This lights a fire under buyers.”