While a surge in distressed deals discourages owners from trading up, tough loan rules keep first-time buyers on sideline.
Sales of previously owned homes rose slightly in March, but prices continued to fall, underscoring the fragility of the housing market's recovery.
Existing home sales increased 3.7 percent in March from February, according to data from the National Association of Realtors released Wednesday. That represents a seasonally adjusted pace of 5.1 million – less than the 5.4 million rate in January and 5.2 million in December.
The numbers disappointed an industry that has been hoping for a rebound in the all-important spring sales season. "The economic recovery has bypassed the housing market," Toronto-based Capital Economics wrote in a note to clients.
Distressed sales accounted for 40 percent of all sales in March, the highest in two years, according to NAR. All-cash buyers made up 35 percent of all transactions – the highest since record-keeping began in 2008 – in a sign of a persistently tight lending environment keeping many entry-level buyers from inking deals.
"A fundamental upturn in housing requires first-time home buyers," said Steve Blitz, senior economist with ITG Investment Research. "With tighter requirements and no low-down-payment [loans] available, the renting cohort is still renting and not making the necessary impact to believe that the housing market has turned," he said.
Until prices stabilize, the housing market faces a long slog toward recovery. The median price in March fell to $159,600, down nearly 6 percent from a year earlier. Home prices have fallen so low that investors are snapping up homes to fix and resell for a profit or to turn into rentals; investors accounted for 22 percent of sales activity in March, up from 19 percent in February.
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