Are Homes Sales Up or Down?

Reading the headlines, you see that existing home sales are down. Then you turn the page and notice that purchase applications are up. Does that make any sense? But both statements are true.

First, looking at the October report of the National Association of Realtors, which reports on October sales, we see that existing home sales dropped 2.2 percent from September and 24.9 percent from a year earlier. Now that 12-month drop might sound really bad, but remember, in October 2009 homebuyers were rushing to make a purchase in time to take advantage of the first homebuyer tax credit. So the October 2009 numbers were much higher than normal.

Lawrence Yun, who is chief economist for the NAR, said the recent pattern in home sales can be expected to continue.

"The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales," he said. Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels. Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring of next year."

So he expects the recovery to continue. But the NAR tends to try to put a rosy spin on the picture. You may have a hard time believing that there are signs to recovery from the association which represents those dependent on improving real estate sales.

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Yet when you look at the Mortgage Bankers Association numbers, you can see cold hard facts that suggest the market is improving.

The seasonally adjusted Purchase Index increased 14.4 percent from one week earlier. On a seasonally adjusted basis, the MBA indicates that this is the highest Purchase Index recorded since May 7, 2010, which is shortly after the second homebuyer tax credit ended. Only purchase contracts signed by April 30, 2010, were eligible for that tax credit, so people were rushing to buy at that time, too.

That makes the news that the Purchase Index jumped -- even without a tax credit -- a very positive sign. It seems to show that people are back in the market for homes.

"The increase in purchase applications last week aligns with other incoming data suggesting that consumers are feeling somewhat more confident with their financial situation," said Michael Fratantoni, the MBA's vice president of research and economics. "While the increase was magnified somewhat by the comparison to the holiday week, the level of purchase applications on a seasonally adjusted basis is now at its highest level since the expiration of the homebuyer tax credit." The holiday Fratantoni refers to is Veterans Day, which could have impacted the number of Purchase Applications last week.

Celia Chen, senior director at Moody's, also thinks the housing market will improve.
"With mortgage rates expected to remain very low and job growth expected to pick up, housing activity is going to improve in the remaining two months of this year and into the beginning of 2011," Chen told HousingWatch. "It can hardly get much worse, can it?"

But she expects the improvement to be small. "The pace of home sales will still be very slow and construction will be weak. I don't anticipate that the housing recovery will gain any momentum until the second half of 2011," she adds.

She also anticipates a drop in house prices. "I expect that house prices will fall in the fourth quarter and early next year," Chen says. "Foreclosures are the main driver behind the decline in house prices. There is still a big inventory of distressed homes out there to work through."

We won't know for sure, through December, whether the sales of new and existing homes truly jumped during the month of November, but the MBA Purchase Index sure gives reason to hope that there is some improvement in home sales.

Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures" and "The Complete Idiot's Guide to Improving Your Credit Score."

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