The rising number of distressed sales forced home prices down to their lowest level in nearly nine years, a troubling sign for the struggling housing sector.
The National Association of Realtors said Wednesday that sales of previously occupied homes rose slightly last month to a seasonally adjusted annual rate of 5.36 million. That's up 2.7% from 5.22 million in December.
Still, the pace is far below the 6 million homes per year that economists say represents a healthy market. And the number of first-time home-buyers shrunk to 29% of the market — the lowest percentage of the market in nearly two years. A more healthy level of first-time home-buyers is about 40%, according to the trade group.
Foreclosures represented 37% of sales in January. And all-cash transactions accounted for 32% of home sales — double the rate from two years ago when the trade group began tracking these deals. In places like Las Vegas and Miami, cash deals represent half of all sales.
One reason cash sales are rising is that a growing number of purchases are being made by investors, the Realtors group said.
Millions of foreclosures have forced down home prices and more are expected this year. The median price of a home sold in January was $158,800. That's a decrease of 3.7% from a year ago and the lowest point since April 2002.
"Home prices continue to languish," said Steven Wood, chief economist for Insight Economics. "Any recovery will be difficult to sustain given the still-large supplies of homes for sale and distressed properties."
A major barrier for first-time home-buyers is tighter lending standards adopted since the housing bubble burst. These have made mortgage loans tougher to acquire. Banks are also requiring buyers put down a larger down payment. During the housing boom, buyers could purchase a home with little or no money down.
And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further. High unemployment is also deterring buyers. Job growth, while expected to pick up this year, will not likely raise home sales to healthier levels.
With mortgage rates rising, mortgage applications have been volatile and are now near their lowest levels in 15 years. Economists say it could take years for home sales to return to healthy levels.
Last year, home sales fell to 4.9 million, the lowest level in 13 years. And even that number, some say, was overstated.
CoreLogic, a real-estate data firm in Santa Ana, Calif., said it has found that 3.3 million homes were sold last year compared to the trade group's 4.9 million figure. It has suggested the Realtors of inflating its numbers to make it appear that more homes had been sold.
The Realtors group, which has produced the monthly report on the number of existing homes sold since 1968 and acts as the chief advocate and lobbying arm for real estate agents, says it is reviewing its 2010 yearly estimate.
One obstacle to a housing recovery is the glut of unsold homes on the market. Those numbers fell to 3.38 million units in January. It would take 7.6 months to clear them off the market at the January sales pace. Most analysts say a six-month supply represents a healthy supply of homes.
Analysts said 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.
For January, sales were up in three of the four regions of the country led by a 7.9% rise in the West. Sales were up 3.6% in the South, 1.8% in the Midwest and down 4.6% in the Northeast.
The January increase was driven by a 2.4% rise in sales of single-family homes which pushed activity in this area to an annual rate of 4.69 million units. Sales of condominiums were up 4.7% to a rate of 670,000 units.