The good and bad news of existing-home sales

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The National Association of Realtors (NAR) released its monthly tally of home sales this morning. The headline figure was pretty cheery. The number of existing homes sold in July increased 7.2% from June. Sales in July were also up 5% when compared to July 2008—the first year-over-year gain we’ve seen since November 2005. (The data include single-family houses, townhomes, condos and co-ops that were previously owned—i.e., not new construction.)

Now, prices are still falling. The average sales price of a house—$178,400—was down from the month before, and off 15% from a year ago. But the uptick in volume is good news because it shows that the extra houses sitting around are finally moving into the hands of homeowners. We’ve still got a 9.4-month supply of homes on the market, but that’s because more houses are being put up for sale—inventory is flowing into the system, but it’s also, importantly, flowing out.

And now for the not-so-great news.

First-time home buyers continue to account for 30% of what’s being sold. In a way, that’s not so bad. Folks who ought to be in homes but had long been locked out by bubble prices can now afford to buy in. As NAR noted in its report, and I mentioned in this story, price-to-income ratios are approaching historical levels. Affordability—key to a healthy housing market—is back.

However, a lot of these sales are likely being driven by the $8,000 federal tax credit for first-time buyers. When that money goes away at the end of November, will those buyers leave the market? It is a good, and unfortunately unanswerable, question. Plus, if first-time owners are the big players in the market, then anyone trying to sell a house that’s not priced as a starter home isn’t necessarily benefiting from the pick-up in activity.

The other bit of potentially unsunny information is that, according to NAR, 31% of sales are of distressed properties. That includes both foreclosures (20% of what’s being sold) and short sales (11%). At the end of last year, that figure was higher—45% of everything sold was distressed—but it’s still, obviously, elevated. And by at least one other measure, a study by Campbell Surveys for the trade publication Inside Mortgage Finance, the percentage of distressed sales could be much higher—double what NAR is finding.

That means that if you’re out there trying to sell your house like a normal person, the competition is pretty stiff. You’re up against banks selling repossessed properties that they just want to get rid of, and desperate, underwater homeowners convincing lenders to take less than what they’re owed on the mortgage. There may be reasons to be optimistic, but the housing market is still a messy, messy place.