Existing Home Sales Up Strongly in September

Existing home sales posted a strong increase in September, according to the National Association of Realtors, as first-time homebuyers took advantage of low interest rates and a soon-to-expire $8,000 tax credit.

Existing home sales posted a strong increase in September, according to the National Association of Realtors, as first-time homebuyers took advantage of low interest rates and a soon-to-expire $8,000 tax credit.

Sales of existing homes increased by 9.4 percent in September, according to the NAR, following a small decline in August. Existing home sales have increased for five of the past six months and are now at their highest level since July 2007.

"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Edward Yun, the NAR's chief economist. Yun said the organization is hopeful that Congress will extend the $8,000 first-time homebuyer credit past its current Nov. 30 expiration date to help maintain momentum in sales.

Buyers also benefited from low mortgage interest rates in September, which averaged just above 5 percent on 30-year loans for most of the month, according to secondary mortgage lender Freddie Mac, after fluctuating in the 5 ¼ - 5 ½ percent range for most of the summer.

A seasonally adjusted 5.57 million existing homes were sold in September, according to the NAR, 9.2 percent above the organization's estimates for September 2008, just before the collapse of the credit markets.

Supply of unsold home declines

The inventory of unsold existing homes on the market fell 7.3 percent in September, to 3.63 million units, representing a 7.8 month supply, down from 9.2 months in August. A six-month supply is generally considered the point at which housing prices stabilize.

"The current housing supply is the lowest we've seen in two and a half years," Yun said. "If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year.

The median sales price continued to fall, to $174,900, which is 8.5 percent below the September 2008 level. The NAR says sales of foreclosed properties, which typically sell at a discount compared to traditional sales, are dragging down median prices.

Distressed properties made up 29 percent of total sales in September, down slightly from the 31 percent level of the previous two months. However, concerns remain about a large supply of foreclosed homes that have been so far held off the market by banks, and about the potential for a new wave of foreclosures driven by sharply rising unemployment earlier this year. As those homeowners exhaust their resources and move into foreclosure, the additional influx of distressed properties could drag home prices down even further.