Home Sales Drop due to Low Supply

Existing home sales dropped last month and this could indicate that recovery in sales has reached a lull that can only be resolved by higher prices. Total existing home sales declined 0.6 percent in March from February to a seasonally adjusted annual rate of 4.92 million. This is according to the National Association of Realtors.

The drop surprised Wall Street analysts. The fall of existing home sales was attributed to a lack of supply. Buyer traffic was 25 percent above year-ago levels according to the NAR. Housing inventories were down almost 17 percent year-over-year. Home sales increased 10.3 percent from March 2012.

Economists said that sales volumes would show slight changes in the next couple of months until people list their homes for sale and attract more buyers. They said the recovery in housing sales stopped as prices increase.

In March, the supply of house for sale remained at 4.7 months, which meant that they would sell out at the current rate of sales if no new supply was added on the market. A six month supply is considered balanced between sellers and buyers.

The low supply resulted to soaring prices. The national average of existing home price was $184,300 in March, which was up 12 percent year-over-year. The big price gains will life people out of the situation where they owe more on their homes than their worth. This will lead to more sellers. Around 2 million fewer homeowners were underwater at the end of 2012 than the previous year. Across the nation, 13.8 million homeowners with a mortgage were underwater at the end of 2012.

For the second straight month, inventory was up after adjusting for seasonal factors. Conventional sellers accounted for 79 percent of the sales, which was up from 71 percent of sales the previous year and 60 percent of sales in 2010.