Existing home sales rebound, surging 9.4 percent in September
The nearly year-long positive trend in the U.S. housing sector continues. Boosted by the $8,000 federal credit for first-time home buyers, U.S. existing home sales surged 9.4 percent in September to a seasonally adjusted annual rate of 5.57 million units, the National Association of Realtors announced Friday. It's the highest level for existing home sales in more than two years.
Economists surveyed by Bloomberg News had expected September existing home sales to total a 5.35-million-unit annualized rate. Existing sales totaled a 5.1 million-unit annual pace in August. Further, existing home sales are also up 24 percent since bottoming in January.
Meanwhile, inventories of existing homes also fell 7.5 percent in September to a 7.8-month supply at the current sales pace, down from a 9.3-month supply in August. Inventories have fallen about 15 percent in the past year. Economists say a healthy, normal existing home sale market has a three- to five-month supply of homes available for sale.
What's boosting home sales? Lawrence Yun, NAR chief economist, said the federal government's $8,000 tax credit for first-time home buyers, which Congress will probably extend past the current program's November 30 deadline, is a factor.
"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," Yun said in a statement. "We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery."
In addition, the U.S. median home price for all types of housing fell to $174,900 in September and is down 8.5 percent in the past 12 months; still that's a lower year-over-year price decline than the 15.1 percent decline recorded in July. Further, the median sale price for a single-family home fell 8.1 percent to $174,900; for condos, the median price declined 11.7 percent to $175,100.
Economists and market analysts closely follow the monthly existing home sales statistic because previously owned homes account for the bulk of U.S. home sales. Moreover, housing activity does not operate in a vacuum. When homes are sold, homeowners tend to buy durable goods and big ticket items for their new homes: furniture, appliances, home care supplies, and landscaping equipment. For example, driveway sealant sales rise in the spring after existing home sales rise. The reason? Home buyers spruce up their existing home by re-sealing or re-surfacing the driveway. An uptrend in any of these areas is good news for the economy and bullish for U.S. stock markets.
By region, in September existing home sales increased 4.4 percent in the Northeast, where the median price fell 7.0 percent to $234,700 compared to a year ago; sales rose 9.6 percent in the Midwest, where the median price dipped one percent to $147,600; in the South, sales rose nine percent, with the median price dropping 7.6 percent to $153,500; in the West, sales surged 13 percent, with the median price plunging 15 percent to $219,000.
Analysis: Clearly the $8,000 tax credit is boosting sales, but so is the price mechanism. Prices have fallen to such a degree, by more than 40 percent in some metropolitan areas, that those potential home buyers with high credit scores and an adequate down payment have looked at prices and the relatively low mortgage rates, and concluded that now is a pretty good time to buy.
Further, if existing home sales continue to trend higher -- they've risen for basically a year -- housing will begin contributing to U.S. GDP at some point in 2010, after more than two years of subtracting from it. Moreover, as economists frequently note, housing affects many lateral sectors and stimulates economic behavior in subtle ways. Also encouraging in the September data is the large, 7.5 percent drop in home inventories. That fast pace probably will not continue in the months ahead, but will help to stabilize housing prices by decreasing the large supply of excess inventory built up during the leveraging bubble.