By Mark Huffman
ConsumerAffairs.com
November 23, 2009
Sales of existing homes in October increased 10.1 percent from September and 23.5 percent from October 2008, according to the National Association of Realtors. Sales activity was at its highest point since February 2007, two months into the recession.
NAR credits the robust market activity to the anticipated expiration of the first-time homebuyer credit, which was set to expire November 30. As it turns out, Congress expanded the credit to other buyers and extended it well into 2010. Even so, NAR economist Lawrence Yun said he was surprised by the extent of the sales action.
"Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," Yun said. "With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."
Now that the tax credit has been extended and expanded, potential buyers have until April 30 to have a contract in place. It remains to be seen, however, whether the demand will continue, though Yun believes it will.
Pent-Up Demand?
"There is still a large pent-up demand that can be tapped before the tax credit expires. Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was cancelled or fell through - there likely are many more buyers who were attempting to purchase but simply ran out of time," Yun said.
Historically low interest rates also are boosting the market. Mortgage interest rates last month were the third lowest on record dating back to 1971. According to Freddie Mac, the average rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reporter the 30-year rate dropped to 4.83 percent.
The glut of homes on the market, caused by the housing market collapse, is also slowly disappearing. Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.
"The supply of homes on the market is now at the lowest level in over two-and-a half years - we're getting closer to a general balance between buyers and sellers," Yun said. The last time the relative housing inventory was this low was in February 2007 when it also was at a 7.0-month supply.
However, prices continue to fall - good news for buyers but bad news for sellers and current owners. The national median existing-home price3 for all housing types was $173,100 in October, down 7.1 percent from October 2008.
Bargain Hunters
Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.
Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.
Existing-home sales in the Midwest surged 14.4 percent in October to a pace of 1.43 million and are 28.8 percent above a year ago. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008.
In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.
Existing-home sales in the West increased 1.6 percent to an annual rate of 1.31 million in October and are 12.0 percent above a year ago. The median price in the West was $220,200, which is 14.7 percent below October 2008.
