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Lack of supply causes December home sales dip

by Tyler Day
Jan 22, 2013


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Tyler Day/MEDILL

According to the National Association of Realtors, regions saw mixed results in December as part of overall strong year in home sales.

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Tyler Day/MEDILL

December home sales fell 1.01 percent from November, but were up over the year-ago month by 12.8 percent.

The housing market may have had too much of a good thing last month.

Sales of existing homes unexpectedly drooped  nationwide in December, falling short of economist expectations, according to a Tuesday report from the National Association of Realtors. 

The reason? Experts say demand is surging so rapidly that it’s outstripping the supply of homes being put up for sale.

Home sales in December fell from the previous month to an adjusted annual rate of 4.94 million, down from a revised 4.99 million in November. Analysts surveyed by Bloomberg had expected an adjusted annual rate for December of 5.1 million.

Despite December’s pullback, the long-depressed market for existing homes is closing out  a strong sales year that has drained much of the excess inventory that once plagued the market.

With the job market slowly improving and would-be buyers gaining confidence, “The fundamental demand is being released,” National Association of Realtors spokesman Walter Molony said in an interview.

The combination of surging demand and still-soft new-home construction rates,   Molony said, means the problem moving forward is tight inventory in the housing market.

“We need to see the inventory situation improve. We want to have a balance between buyers and sellers,” the NAR spokesman said. “It has transitioned from a buyer’s market to a seller’s market.”

The trend has been upward for some time.  While December’s existing-home sales were down from  November, they were still up a hefty 12.8 percent from 4.38 million in December 2011 -- and up 9.2 percent overall in 2012.  The sales total last year, of 4.65 million, was the highest since the housing and financial markets crashed in 2007.

December’s sales trends weren’t uniform across the U.S., however.  Home sales increased from November by 3.2 percent in the East and 5 percent in the West.  The Midwest saw a decline of 5.9 percent, while sales in the South dropped 3 percent.

“The housing market continues to heal, especially when measured on a year-over-year basis,” Mesirow Financial Holdings Inc. economist Diane Swonk said in a blog post.

Separately Tuesday,  the Illinois Association of Realtors said Illinois home sales increased 15.2 percent in December to 10,265 from 8,908 a year ago.    The state Realtor group t said the city of Chicago saw a comparable jump of 14.6 percent year-over-year sales in December with 1,806 sales compared to 1,576 last year.

The lack of inventory that economists say led to the decline in sales in December may help contribute to the rising home prices nationwide.

According to National Association of Realtors chief economist Lawrence Yun, “Although tight inventory is limiting home sales in many areas, overall sales are expected to stay on an upward trend. The biggest impact of tight inventory is upward pressure on home prices.”

Molony warns that although pricing is still recovering from pre-2007 values, the market does not want to see such a drastic rise in home prices that would outpace affordability.

Median home prices rose 11.5 percent nationally to $180,080 year-over year. Illinois home prices were unable to keep pace with the increase, managing only a 5.6 percent upturn to $132,000 in December from $125,000 last year.

The city of Chicago is outpacing the national trend with a 19.4 percent jump in 2012 to $185,000 from $155,000.

"When you look at where we were in January 2012 versus where we ended up in December,” said Michael D. Oldenettel, president of the Illinois Association of Realtors, “you have to be impressed with the market's resilience."