Done Cheering for Home Sales? Here's What's Really Going On

by Graham Wood Mar 21st 2013 12:30PM
Updated Mar 21st 2013 2:08PM

Existing home sales are up: Rah! Rah! Rah! You're probably hearing the resounding cheers as the National Association of Realtors reported Thursday that sales of existing homes rose to a three-year high in February. Even more exciting is that real estate inventory, which has been frustratingly low for quite a while, increased 9.6 percent in February as well. Now we're not saying that any of this isn't good news. We're just saying, temper your enthusiasm.

Things are improving, but there are still some troubling signs out there in the housing market. ERA Real Estate recently surveyed its brokers and agents around the country to get a feel for what was happening in their local markets. Here's what they found:

• While consumer confidence in the economy is growing, homeowners aren't necessarily selling. Forty percent of consumers are still not willing to put their homes on the market, while three quarters of ERA brokers and agents report seeing an increase in buyer interest. That means that the inventory crunch, though it loosened a bit in February, will continue.

• It's still an active investor market. Corporate-backed purchases of distressed properties still run a large part of the market. There are individual investors, too, but competition from the big outfits is fierce. Still widely missing from the game? The first-time homebuyer. And without them, it's hard to see how sustainable the current housing recovery will be.

• An increase in home equity will convince sellers of previously underwater properties to finally put their homes on the market -- but that's not happening yet. The hangover from a long, persistent period of decline in home values has made homeowners nervous to try their hand at selling again. Now is really the time those sellers should be in the market, but they'll likely need some more time before they're convinced to take the plunge.

Another note about the increase in inventory in February that NAR reported: Jed Kolko, chief economist at Trulia, cautioned that "the typical seasonal pattern for inventory is to rise significantly between January and February." Though this one was a doozy -- the biggest monthly inventory increase since December 2010 -- it's not like this stuff never happens. But Kolko did say that it could be the first sign of some very good juju for homebuyers: It's "an early hint that the inventory crunch may finally be easing for good."