U.S. January Existing Home Sales Rise to Highest Level Since May 2010

• Existing home sales in the US rose 4.3% month over month in January 2012 to 4.57 million annualized units.
• Months' supply of unsold homes fell to 6.1 from 6.4 in December 2011 as homes available for sale edged down by 0.4%.
• The increase in existing home sales in January puts the pace of resale activity at 6.7% above the total of 4.28 million units seen in 2011 and joins the growing evidence that the recovery in residential real estate markets is gaining traction.

Existing home sales in the US rose 4.3% in January 2012 to 4.57 million annualized units from the downwardly revised 4.38 million seen in December 2011 (initially reported as 4.61 million). Today's increase was larger than the 1.0% increase expected by markets; however, the downward revision to the previous month put the pace of sales lower than the expected 4.66 million units. The overall increase was due to a faster pace of sales of both single-family homes (up 3.8% in the month), and condos and co-ops (8.3%). As well, gains were seen in all regions of the country and were led by an 8.8% increase in the West, while the South (3.5%), Northeast (3.4%), and Midwest (1.0%) saw modest increases.

The national median sales price of existing homes fell on a year-over-year basis for the fourteenth straight month in January, although the pace of decline was the slowest since December 2010 at -2.0%. Distressed sales (foreclosures and short sales that typically sell at steep discounts) accounted for 35% of total sales, compared to 32% in the prior month and 37% in January 2011. All-cash sales, which largely represent purchases by investors, made up 31% of transactions, were unchanged from December, and down from 32% January 2011.

The absolute number of existing homes available for sale fell for the seventh straight month, down 0.4% to 2.31 million units in January, which represents the lowest level since March 2005. At the current pace of sales, it would take 6.1 months to clear this inventory of unsold homes, down from 6.4 months in December (initially reported as 6.2 months). This represents the lowest months' supply since April 2006.

The increase in existing home sales in January 2012 brings the pace of resale activity to its highest level since May 2010 and represents a 6.7% increase over the total of 4.28 million units seen for 2011 as a whole. This sets a positive tone for residential real estate activity for 2012 and adds to the growing list of evidence that the recovery is indeed gaining traction. While this recovery is likely to be a drawn-out process, given the size of the overhang of distressed and foreclosed properties yet to come onto the market, some solace can be taken from indications that mortgage delinquencies are trending lower and that the stock of foreclosed properties has stabilized. If these developments persist, it could result in a decreased drag on home prices and help return the market normal functionality; but again, this process is likely to take years.