Shortage of Distressed Properties Fueled Existing Sales Drop

The drop in existing home sales reported by the ""National Association of Realtors"":http://www.realtor.org/ (NAR) Thursday likely stemmed from a lack of distressed properties on the market, according to IHS Global Insight.

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In May, existing-home sales fell to a seasonally adjusted annual rate of 4.55 from 4.62 million in April, which is a monthly decline of 1.5 percent, the NAR reported. Existing-home sales were still up from a year ago in May 2011 by 9.6 percent.

""Sales declined in May because of a drop in the number and share of investors buying homes. The investor share fell three percentage points from April to 17%. This drop was likely related to a drop in the numbers of ├â┬ó├óÔÇÜ┬¼├ï┼ôdistressed homes' on the market,"" said IHS economist Patrick Newport in a commentary.

According to the NAR report, investor purchases made up 17 percent of homes sales in May, down from 20 percent in April and 19 percent in May 2011. The report also revealed that distressed home sales, or foreclosures and short sales, declined monthly and yearly as well.

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In May, distressed sales accounted for 25 percent of sales compared to 28 percent in April and 31 percent in May 2011.

Newport explained homes sales were also down because those who are underwater or nearly underwater ""cannot trade up."" This drop, he added, is one reason that home prices are rising.

The NAR reported the median existing-home price for all housing types was up by 7.9 percent in May to $182,600 compared to a year ago. The increase marks the third month of yearly gains.

""Some of the price gain results from a shrinking share distressed homes in the sales mix,"" said Lawrence Yun, NAR chief economist, in a release.

Due to the shortage of distressed properties, Yun added realtors in west coast states have been calling for an expedited process to get more foreclosures on the market due to the greater number of buyers compared to available properties.

Shortages also are found in much of Florida, according to the NAR.

On average, foreclosures sell for discounts of about 19 percent below market values, while short sales sell at a 14 percent discount.

While investor sales may be down due to a lack of discounted properties, more traditional buyers are sprouting on the market.

But, IHS said tight credit conditions are holding that group back.

""The home sales market is still on the mend,"" said Newport. ""But the path to recovery will be a slow and bumpy one. The key obstacle to a strong recovery right now is tight credit. Our forecast is for existing home sales to climb by 9% this year to a still too-low 4.68 million units in 2012.""