Rising Home Sales Point to a Housing Recovery

A housing recovery may well be underway as existing homes sales unexpectedly jumped 10% in September to a seasonally adjusted annual rate of 4.53 million units, the National Association of Realtors announced Monday.

A Bloomberg survey had expected September existing home sales to rise to 4.3 million units, from August's revised annual rate of 4.12 million units (which was just a slight drop from the previously released rate of 4.13 million). The annual rate of existing home sales hit a 15-year low of 3.84 million units in July.

Sales are still down 19.1% from the annual rate of 5.60 million units registered a year ago in September 2009, but that's essentially unchanged from the 19.0% year-over-year decline registered in August 2009.

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In addition, home inventories registered a decent improvement in September, decreasing 1.9% to 4.04 million units, or a 10.7-month supply at the current sales pace, down from a 12-month supply in August. A healthy resale market has a three- -to-five-month supply of homes.

A return of inventories to normal levels is important because it's one key to stabilizing home prices, and the return of healthy home value appreciation rates of 4% to 7% per year.

Another encouraging September data point concerned sales, which rose in all four region: 10.1% in the Northeast, 14.5% in the Midwest, 10.6% in the South, and 5% in the West.

NAR Sees a Choppy Recovery

NAR Chief Economist Lawrence Yun made the case that the housing sector is forming a bottom, and he now has some empirical evidence to support that thesis.

"A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium," Yun said in a statement. "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."

The median sales price for a single-family home was $172,600 in September, down 1.9% from a year ago.

The median sales price for a condominium was $165,400 in September, down 6.2% from a year ago.

The median sales price for all types of housing in September, by region, was as follows: Northeast, $239,200, down 1.4% from a year ago; Midwest, $139,700, down 5.2%; South, $149,500, down 2.6%; and the West, $213,600, down 4.9%.

September's existing home sales report is another, qualified positive for the U.S housing sector. The upside? Existing sales have risen for two straight months and appear to be at least trying to form a bottom.

The downside? The market mechanism is taking effect -- namely, home sellers have dropped prices in order to sell their homes in today's high-inventory "buyers' market." That's good news for prospective home buyers -- who'll get more home for their dollar, but bad news for home sellers, who obviously will receive a lower price for their assets.

Finally, if existing sales continue to rise in the months ahead, prices will begin to firm as the unusually large inventory of existing homes decreases. Moreover, continued growth in existing sales would help support U.S. GDP growth -- and if that trend develops, it would be the best news in the U.S. housing sector since 2007.