Home sales rise, but prices will be slow to follow

— -- Home sales are rising, but prices won't follow quickly in many markets.

Sales of existing homes increased 4.3% in January from December to a seasonally adjusted annual rate of 4.57 million, the National Association of Realtors reported Wednesday.

While still weak, that was the highest level in 20 months, the third gain in four months and a 0.7% increase over January 2011.

A housing market turnaround "may finally be starting," says Gus Faucher, senior economist at PNC Bank, noting that home builder confidence and new home construction are also up.

Falling inventories may be even more important than stronger sales, says Trulia economist Jed Kolko. In January, the unsold listed inventory was down almost 21% from a year earlier, NAR says.

As demand tightens, prices typically rise. Yet Kolko and others say that may be far off in many markets.

Almost 3.9 million homeowners are in foreclosure or more than 90 days late on their mortgages, says LPS Applied Analytics.

As those homes come to market, they'll "keep prices down even as sales pick up and the economy improves," Kolko says.

Getting rid of the excess supply will be a "drawn-out affair" that will take at least two more years, says IHS Global Insight economist Patrick Newport.

IHS predicts home prices will continue to fall this year on a national basis.

Markets without high numbers of foreclosures will see prices stabilize, if they haven't already, Newport says.

Investors, who are buying homes to turn into rentals, drove 23% of January sales, NAR says.

In some markets, such as Phoenix and Las Vegas, demand for distressed homes is especially strong, says Lawrence Yun, NAR chief economist.

He says the government's plan to sell foreclosed homes it owns to investors to turn into rentals may not be needed in some markets: "If the market is working, maybe it should just be left alone."

NAR revised down its December home sales rate to a pace of 4.4 million units. That means sales fell 0.5% instead of rising 5%.

The December numbers were adjusted more than normal as part of an annual recalculation of seasonal effects, such as stronger winter sales in recent years because investor-buyers are active all year.