Existing Home Sales Soar Again in October

In October, existing home sales rose by 10.1% and are now 23.5% above the year-ago rate. Sales were at a seasonally adjusted annual rate of 6.10 million, up from 5.54% in September and a 4.94 million pace a year ago.

Existing single family home sales rose by 9.7% to a 5.33 million pace, while condo sales soared by 13.7% to a seasonally adjusted annual rate of 770,000. Sales have been greatly aided by the "first time" homebuyer tax credit, which while eventually extended and expanded, for most of the month looked like was about to expire. Thus, in October people were scrambling to try to get in under the wire.

This is the fifth straight month that existing home sales have exceeded year-ago levels. Even more impressive is the fact that actual, non-seasonally adjusted sales actually were higher in October than they were in September. This is highly unusual, since existing home sales are highly seasonal and sales normally drop sharply in October, as can be seen in the graph below (from Calculated Risk.) We are almost back up to the October 2007 level of sales on an actual, unadjusted basis (which is reasonable to look at when comparing the same month of the year).

There was even more good news in that inventories also declined by 3.7% from September, and are down 14.9% from a year ago. Combined with the rising sales pace, that brought the months supply down to 7.0 from 8.0 last month. We are almost at "normal levels" of inventory relative to sales, but not quite. Still where we are today is much healthier than the double-digit months tha prevailed for most of 2008, and this is the second sharp drop in a row. The graph below also comes from Calculated Risk.

Lower mortgages rates -- greatly suppressed by the Fed’s policy of buying up $1.25 Trillion of mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) but that buying spree is expected to end at the end of the first quarter -- have also helped the existing homes sales market. In October, 30-year fixed rate mortgages fell to an average of 4.95%, down 2.17% from 5.06% in September and down 20.16% from the year-ago level of 6.20%.

A third and very important reason for the rebound in existing home sales is that prices have come down. Overall, median existing home prices are now $173,100, a 7.1% decline from a year ago. Existing single-family home prices have held up a little bit better, down 6.8% from a year ago, while prices for Condos are down 10.4% from last year.

Regionally, existing home sales were up by double digits for the month in every region but the West. The Midwest led the way with sales up 14.4% to an annual rate of 1.43 million. From last year, sales in the region are up 28.8%.

In the very important South region, sales rose by 12.7% and are up 25.7% from a year ago. Sales in the South were at an annual rate of 2.30 million, or 37.7% of the total. While that is well below the over 50% rate that the region accounts for when it comes to new home sales, it still makes it the largest region of the country by a wide margin.

The Northeast is the smallest region, with sales at an annual rate of 1.06 million, but that rate was up 11.6% from September and is up 27.7% from a year ago. The rebound was much more muted out West, where sales were up just 1.6% for the month and just 12.0% year over year. The West has also suffered by far the largest decline in median prices, down 14.7% from a year ago -- more than double the next largest decline (the South -- 14.7%).

In the Northeast, which is the most expensive market (median price of $235,400) prices are down just 2.6% year over year. In the Midwest, the most inexpensive market (median price $146,600) prices are actually up 1.1% from a year ago.

While the news on existing home sales is good, and the existing home market is FAR larger than the new home market, it is also far less significant to the economy than is the new home market. New homes directly stimulate residential investment, which is an important (and volatile) component of GDP. Lots of labor and materials go into building a new home.

Existing home sales have only an indirect effect on the economy. They stimulate sales of things like paint from Sherwin Williams (SHW) and furniture from La-Z-Boy (LZB) as people redecorate, but such spending is much smaller than building a whole new house. In other words, this is good news, just don’t get too carried away about its significance.

Comments

[logicalthought]

So, by pouring enough cash into the situation (via the tax credit, artificially low interest rates and the government buying the mortgages) the situation has temporarily stabilized. Now, what happens when interest rates, property and income and sales taxes and the dollar-inflated price of heating oil go up to pay for all of this? Another leg down wouldn't surprise me.

2009 Nov 23 02:40 PM

[bbro]

How are interest rates artificially low if inflation is negative to flat???
It is either cost push or demand pull we don't have either....


On Nov 23 02:40 PM logicalthought wrote:

> So, by pouring enough cash into the situation (via the tax credit,
> artificially low interest rates and the government buying the mortgages)
> the situation has temporarily stabilized. Now, what happens when
> interest rates, property and income and sales taxes and the dollar-inflated
> price of heating oil go up to pay for all of this? Another leg down
> wouldn't surprise me.

2009 Nov 24 01:59 AM

[Moon Kil Woong]

Great we are seeing some success in reflating the bubble. But reflating the bubble just makes another bubble. We know it but apparently the Federal Reserve still hasn't learned anything. What numbskulls. Even Greenspan the blockhead is warning about new asset bubbles. Gee, even what Greenspan did pales in comparison to the moral, etical, and financial delinquence our current easy money policy is creating.

2009 Nov 24 06:06 AM

[Michael Clark]

Hasn't anyone explained to our betters in Washington and New York that creating bubbles is the problem, the thing we want to avoid. We've been blowing bubbles since 1983. We were supposed to stop blowing bubbles in 2001 and let the world recover. But the Inflationists know only bubbles. I hope we keep those bastards around after 2010 so they can go on trial.

2009 Nov 24 06:32 AM

[Michael Clark]

The plan is to never let the market come back on its own. The government is going to continue giving away free money for ever. The economy is gone. Double-dib down comes next.


On Nov 23 02:40 PM logicalthought wrote:

> So, by pouring enough cash into the situation (via the tax credit,
> artificially low interest rates and the government buying the mortgages)
> the situation has temporarily stabilized. Now, what happens when
> interest rates, property and income and sales taxes and the dollar-inflated
> price of heating oil go up to pay for all of this? Another leg down
> wouldn't surprise me.

2009 Nov 24 06:42 AM