Home Sales Spike: Real Sign of Recovery?

Economists got a surprise today with home sales jumping 10 percent to a seasonally adjusted annual rate of 4.53 million in September, from a downwardly revised 4.12 million in August. While this is good news, it's still 19.1 percent below the 5.6 million pace set in September 2009. But this September's numbers from the National Association of Realtors probably reflect a realistic picture of the anemic housing recovery.

That's not necessarily damning news, because new homebuyers were rushing in September 2009 to find a home before the end of the first tax credit last November. Sales fell and then picked up steam again in time for the second tax credit, which required a contract by April 30.

People rushed to sign a contract by April and most of those deals were closed by June, so July and August were very slow months. Most buyers pushed up their planned summer purchase to take advantage of the tax credit in April, especially after it became clear that Congress was not likely to pass another one.
The consensus estimate at briefing.com was 4.25 percent. Bloomberg's survey of 72 economists predicted a median projection of 4.3 million. So the new numbers were a pleasant surprise. (See a full-size version of the NAR chart below). The weakest rate we've seen this year was 3.84 million, which was in July immediately after the tax credit deals were done. No one was surprised by that weak showing.

Lawrence Yun, NAR's chief economist still expects choppy waters. He said, "A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions."

Whether or not the foreclosure moratorium will have a great impact on sales is the big question. In the hard-hit states, a huge percentage of sales are based on
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foreclosures. For example, 56 percent of Nevada's sales were purchases of foreclosures. In Arizona, purchases of foreclosures made up 47 percent; and in California, 43 percent of sales were foreclosures. Most of the homes yet to hit the market are in the shadow inventory of homes awaiting foreclosure. So far, at least in Florida, no foreclosure sales have been taken off the market and real estate brokers tell me those sales take months to close, so any impact of the moratorium will likely not be felt for months if at all.

Low interest rates certainly are helping to keep the market moving, but job growth rather than a foreclosure moratorium will likely have a greater impact on whether or not we see further recovery. The market is definitely primed for a recovery. "Home prices are running about 22 percent less than five years ago, " NAR President Vicki Golder said. "In fact, the median monthly mortgage payment in many areas is less than people are paying for rent," she added.

Everything is primed for a recovery with the Federal Reserve continuing to send the message that they plan to keep interest rates low for a while yet. So the two things holding back buyers is job growth and the security that house prices won't drop further. When buyers feel confident that we're at the bottom we'll probably see a lot more movement in real estate sales.

Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures."

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