Entry-level buyers helped boost home sales in October. (Photo: iStockphoto)
In a sign that at least the entry-level real estate market is alive, home sales were up a surprising 10.1 percent in October, according to the National Association of Realtors. Despite the impressive increase in sales, the median home price dropped 7. 1 percent, meaning the move-up market remains moribund.
When sales rise and the median drops, it means a majority of homes are selling at the low end of the market. When there is a disparity as large as October’s, it shows that a vast majority of homes sold were at the entry level.
The national median price for October was $173,100. NAR says 30 percent of sales in the month were foreclosures or short sales. Distressed properties push property prices down because lenders are willing to sell for less than a homeowner to get the house of its books and reduce losses.
Foreclosures and short sales will be around in large numbers for at least the next six months, and likely longer if the unemployment rate doesn’t improve. Many lenders are releasing foreclosures at a measured pace to boost prices by not flooding the market. In popular areas, this technique is creating multiple bids.
I’ve noted in my town of Camarillo in Southern California that foreclosures that were entering the market at $325,000 to $350,000 a few months ago are now coming on at $375,000 to $390,000. The reason is that nearly all of the earlier homes were getting multiple bids and selling for up to $50,000 above asking price.
Entry-level home sales are being driven by several factors, including pent-up demand among first-time buyers, historically low interest rates that are expected to start climbing in 2010, increased activity from investors looking for rental property and the home buyer tax credit.
NAR also reports that national inventory dropped to seven months in October. It was eight months in September. A market is generally considered balanced between buyers and sellers at six months. Inventory months are determined by calculating how long it would take to sell the current number of homes on the market if no additional properties were put up for sale.—Rick Hazeltine