By Mike Colpitts
The year ended with a bang in real estate as existing home sales jumped 5% in December to end 2011 with the third straight month of higher sales, according to the National Association of Realtors. Low mortgage rates and lower home prices pushed sales to a seasonally adjusted rate of 4.61 million residential units to end the year higher than a year ago.
The jump in home sales sent year-end total residential transactions 3.6% higher for the month to 4.26 million units for the year, marking a 1.7% jump over 2010 sales. Estimates are based on completed transactions from local multiple listing services, and include single family homes, townhouses, condominiums and co-ops.
Housing inventory at the end of December listed by MLS members dropped 9.2% to 2.38 million existing homes, representing a 6.2 month supply average across the U.S. at the current pace of home sales. The inventory is down a full month supply from November.
However, a pent up surplus of homes in the foreclosure pipeline and homes on which owners are in default of their mortgages accounts for an increasing inventory expected to hit the market. Lender Processing Services issued a report this week stating that there are 4.2 million homes presently in the U.S. shadow inventory, which composes a massive surplus of homes that are not yet counted by industry officials.
Record low mortgage rates are expected to push home sales higher in 2012 as buyers take advantage of lower rates. The average rate for a 30-year fixed rate loan fell to another record low in December of 3.96% before dropping this week to set a new record low of 3.88%, according to Freddie Mac.
“The pattern of home sales in recent months demonstrates a market in recovery,” said Lawrence Yun, NAR chief economist. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”
The foreclosure crisis has left markets throughout the hardest hit regions of the U.S. troubled. Foreclosures sold for an average of 22% less in December than non-distressed properties. Short sales, in which lenders agree to sell a home at less than what is owed on a mortgage, closed 13% below market value during the month, according to NAR research.
The market is still also troubled by buyers having difficulties obtaining mortgages, with 33% of NAR members reporting contract failures during December, a hike of 24% from a year ago. But investors bought slightly more homes during the month than November, accounting for more than one in five sales or 21% of residential transactions.