ASSOCIATED PRESS Enlarge
WASHINGTON — Investors drove up U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But first-time homebuyers, who are crucial to a housing recovery, stayed away.
Sales of previously occupied homes rose last month to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors said Wednesday. That’s up 3.7 percent from 4.92 million in February. The pace is far below the 6 million homes a year that economists say represents a healthy market.
Foreclosures or short sales, when the lender agrees to accept less than is owed on the mortgage, rose to 40 percent of all sales. Deals paid for entirely in cash accounted for 35 percent of all sales — the highest level in nearly two years.
Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures: Phoenix, Las Vegas and Tampa.
The evidence of their activity: sales of homes priced under $100,000 have risen 10 percent from a year ago. In that same period, sales of mid-priced homes, between $100,000 and $500,000, have fallen by more than 14 percent.
A big reason for that is fewer first-time homebuyers, the types of people who set down roots and raise families, are entering the market. Sales among that group fell to 33 percent in March. A more healthy percentage of first-time buyers is 40 percent, according to the trade group.
The median sales price rose in March to $159,600, but is still down 5.9 percent from a year ago.
Many would-be buyers are holding off, worried that home prices haven’t hit their bottom. Other potential buyers are having trouble getting mortgages because banks have tightened lending requirements.
One major obstacle to a housing recovery is the glut of unsold homes on the market. There were 3.55 million unsold homes in March. It would take 8.4 months to clear them off the market at today’s sales pace. Analysts say a six-month supply represents a healthy supply of homes.
Economists say the situation is much worse when the “shadow inventory” of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.
Foreclosures are playing a big role in weakening the housing industry. A record 1 million homes were lost to foreclosure last year and foreclosure tracker RealtyTrac Inc. said it expects 1.2 million more will be lost to foreclosures this year.
For March, sales rose 8.2 percent in the South, 3.9 percent in the Northeast and 1 percent in the Midwest. Sales fell 0.8 percent in the West.
Sales of single-family homes rose 4 percent to an annual rate of 4.45 million units. Sales of condominiums rose 1.6 percent to a rate of 650,000 units.