Smart Borrower Blog

Existing Home Sales Lag As Underwater Homeowners, Foreclosures Drag on Market

Mar 21st, 2012 @ 9:26 PM by Amber Nelson

After a few months of small gains, sales of existing home sales dipped in February, according to the National Association of Realtors, as the number of underwater homeowners reached a three-year peak and foreclosures continue to make up a significant market share.

The NAR reported, as quoted in a Washington Post, that existing-home sales fell 0.9 percent last month, to a seasonally adjusted annual rate of 4.59 million, down from 4.63 million in January.

Across the country, sales decreases in the Northeast and West off-set gains in the Midwest and South. In the Northeast sales fell 3.3 percent and 3.2 percent in the West, while the Midwest saw an increase of 1 percent and the South’s total grew by 0.6 percent.

On a yearly basis, sales were up however, growing 8.8 percent from February 2010. The national median home price also actually rose compared with the previous year, up 0.3 percent to $156,000, the first yearly gain since July 2010.

Still the drop in sales may be an indication of the bumpy road to recovery that lies ahead for the housing market. There are now 11.1 million underwater homeowners in the U.S., that is people who owe more on their mortgage loans than their homes are worth. According to real estate data company CoreLogic, that is the highest level since 2009 and it accounts for 22.8 percent of all home loans.

Those who are seriously underwater often turn to ‘strategic default,’ a deliberate choice to walk away from a home even though they can still afford the payments. And even when homeowners don’t choose foreclosure, being underwater keeps them from moving if necessary because they cannot sell their homes.

Foreclosures in general continue to be a problem as well. Distressed properties, including foreclosures and short sales, made up one-third of all existing-home homes sales in February. Those properties keep home prices down and make it more difficult for traditional sellers to off-load their homes. Until the majority of foreclosures are cleared up, it may be difficult to see a full housing recovery.


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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