Saturday, October 25, 2008

Existing Home Sales Up; Slump Over?

Sales of existing homes rose by the largest amount in more than five years in September, a real estate trade group said Friday. The data is a possible glimmer of hope that the housing slump could be starting to bottom out.

The National Association of Realtors said Friday that sales of existing homes rose by 5.5 percent in September compared to August, the best showing since a 5.6 percent increase in July 2003, during the five-year housing boom.

Even with the gain in sales, prices kept falling. The median sales price has dropped to $191,600, down by 9 percent from a year ago. Inventories of unsold existing homes dropped by 1.6 percent in September to 4.27 million units which would be a 9.9 months supply at the September sales pace, still a historically high level.

Lawrence Yun, chief economist for the Realtors, said a sales turnaround first seen in California was beginning to broaden to other regions of the country including Colorado, Kansas, Minnesota, Missouri and Rhode Island.

He said housing may be starting to find a bottom but the turnaround could be aborted by the near-certainty that the country has fallen into a recession. For that reason, he said it was important for Congress to pass a second stimulus package including measures that would bolster the housing market.

In a further effort to bolster the housing market and deal with record high levels of mortgage defaults, Shelia Bair, the head of the Federal Deposit Insurance Corp., is pushing Treasury to include in the $700 billion rescue package for the financial system a new program to prevent more mortgage foreclosures.

Under Bair's proposal, the government would provide guarantees for mortgages that have been reworked by banks to lower the payment schedules to more affordable levels.

The rise in September sales pushed activity to a seasonally adjusted annual rate of 5.18 million units last month. Sales were up 9.6 percent on a year-over-year basis before adjusting for seasonal changes.

By region of the country, sales soared by 16.8 percent in the West and rose a more moderate 4.4 percent in the Midwest and 2.2 percent in the South. The only region of the country which saw a decline was the Northeast, where sales fell by 1.1 percent.

Housing has been suffering through its worst downturn in decades following a five-year boom that ended in 2006. Since that time sales and prices have plummeted.

Builders have responded to the huge glut of unsold homes by sharply cutting back on construction as their confidence levels have fallen to record lows. The National Association of Home Builders is projecting that construction of new homes and apartments will total just 936,000 units for this year, which would be the weakest performance since 1945.


Source: National Association of Home Builders, National Association of Realtors.


Rob Wagoner said...

A slight up tick is not the end of a slump. Its like saying sure we are losing money on every sale, but we will make it up in volume.

We need to keep our heads down and keep reducing inventories of homes. When prices equalize then maybe we can say we are reaching the end of the slump.

Lisa_Lisa said...

Absolutely Rob. Banks and builders went nuts during the housing boom (a.k.a. the housing bubble, refinancing bubble, et al.)

It is definitely a buyers market but very unfortunate for those who were hoping for a way to get our of there homes (reduce costs and downsize, relocate, etc.)

Economic trends are just that - they come in cycles and even with the so-called financial crisis that still looms (another bubble that has a short term solution doomed to burst again), I think we will recover but not before going through some serious pains. How serious and for how long is anyone's guess.