Existing home sales drop

NEW YORK (CNNMoney.com) -- Sales of existing homes unexpectedly fell in January, according to an industry report published Friday, highlighting concerns that the housing market is weaker than previously thought.

The National Association of Realtors reported that home resales fell 7.2% last month to a seasonally adjusted annual rate of 5.05 million units, down from the revised rate of 5.44 million in December. Still, on a year-over-year basis, sales were up 11.4%.

The drop surprised many industry analysts. Existing home sales were expected to increase slightly to an annual rate of 5.5 million, according to consensus estimates from Briefing.com.

The January sales rate was the lowest since June, when the rate stood at 4.9 million units.

The drop was due in part to a delay between shopping for a home and closing on it among buyers taking advantage of a popular tax credit, according to Lawrence Yun, NAR's chief economist.

"People who got into the market after the homebuyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales," Yun said in a statement.

In November, Congress extended and expanded a credit that allows first-time buyers to deduct up to $8,000 from their income taxes and some repeat buyers to get a $6,500 break. Buyers now have until April 31 to qualify for the credit, which helped boost new home sales from depressed levels last year.

Analysts expect sales to pick up in coming months as the deadline for the tax credit looms.

"Activity should be picking up strongly in late spring as buyers take advantage of the tax credit," Yun said. "Still, the latest monthly sales decline is not encouraging and raises concern about the strength of a recovery," Yun said.

On Thursday, the government said sales of new homes in plunged to a record low in January.

NAR said a separate survey showed the share of first-time buyers in the market declined in January, while more existing homes were bought by investors.

First-time buyers purchased 40% of homes in January, down from 43% in December. Investors accounted for 17% of transactions in January, up from 15% in December. Overall buyer traffic increased 9.4% in January, NAR said.

"First-time buyers and others who need a mortgage are increasingly losing out to all-cash investors for the best bargains in many areas," said Vicki Cox Golder, NAR's president and a realtor in Tucson, Ariz. "Particularly for foreclosed homes where cash is king," she said.

According to NAR, "distressed homes," or foreclosures, made up 38% of sales last month.

Price and inventory: Friday's report also showed the median price of homes sold in January was $164,700, which was unchanged from January 2009.

"As more first-time homebuyer tax credit purchases come into the market over the next few months, downward pressure on prices will intensify," said Adam York, an economist at Wells Fargo.

The total number of existing homes on the market fell 0.5% in January to 3.27 million units, which represents a 7.8 month supply at the current sales pace. That's up from a 7.2 month supply in December.

"We've chipped away at the mountain of inventory to the tune of 1.3 million units over the past year and a half," said Mike Larson, a real estate analyst at Weiss Research. "That's a sign of progress."

Sales by property type: Housing markets suffered across the board. Single-family home sales fell 6.9% to a seasonally adjusted annual rate of 4.43 million in January from a pace of 4.76 million in December, but were 8.6% above the pace 12 months ago.

Condominium and co-op sales fell 8.1% to a seasonally adjusted annual rate of 620,000 units in January, from 675,000 in December, but were 38.1% above January 2008's rate.

Sales by region: Total existing home sales fell the most in the Northeast, dropping nearly 11% in January to a pace of 820,000 units. Still, that's 22% higher than a year ago. The West fared the best of all regions, but sales there still fell 5.2% to an annual level of 1.28 million; sales in the South sank 7.4% to 1.87 million; and the Midwest fell 6.9% to 1.08 million.