October Home Sales Higher Than Expected

Home sales in October were at a faster than expected pace that has reached levels

not seen in more than two years, as buyers scramble to take advantage of tax credits and low prices. According to the National Association of Realtors the pace of home sales in October was more than ten percent higher than the previous month. The seasonally adjusted annual rate of 6.1 million sales was the highest since February 2007.

In a recent Reuters survey, analysts had expected the sales pace to pickup in October, though only to a pace of 5.7 million sales, from a downward revised 5.55 million sales in September. Compared to last October, this years pace of sales represents a 23.4 percent jump.

In response to the positive housing sales news, US stock markets climbed, while treasury debt prices went relatively unchanged. Sales are expected to remain strong in November as buyers close deals that were started before the extension of the federal tax credit for first time buyers.

Foreclosures and other distressed properties accounted for about 30 percent of sales in October, and about a third of sales were to first time buyers. The distressed sales continue to bring prices down, though prices do seem to be stabilizing in many areas. The national median sales price for a home in October, $173,000, was 7 percent lower than the same month in 2007, which is the smallest yearly decline in more than twelve months. Distressed properties usually sell for 15 to 20 percent less than non distressed homes.

Existing home sales, it seems, have already hit bottom, and the overall decline in home sales seems to be close to leveling off. After a three year decline in the housing market, which was largely responsible for the worst US recession in 70 years, construction of new housing had a positive impact on economic growth in the third quarter for the first time since 2005.

Helping the recovery are the $8,000 tax credit available to first time homebuyers, low mortgage rates, and foreclosure driven low prices. The Obama Administration recently extended the first time buyer credit and added a $6,500 credit for existing homeowners buying a new home. Originally set to expire at the end of November, both credits will now expire April 30.

The October spike in sales was enjoyed by all sectors of housing. In the single family homes sector, by far the largest housing sector, the increase was 9.6 percent, while condo sales experienced a spike of 13.3 percent. Sales rose in all four regions of the nation, while prices fell in all but the Midwest. The rise in Midwestern home prices was the first rise in any region since last November.

Economists are hopeful that a sustained recovery in the housing market will improve consumer confidence, which has been rocked the last few years by growing joblessness. Though the economy experienced slight growth in the third quarter after declining in each of the previous four quarters, tentative consumer spending is believed to be hampering the growth.

by: Ron Parks

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