Home Sales Post Record Monthly Gain

By:
Kirk Haverkamp | November 24, 2009

Existing home sales posted a record gain in October, surging 10.1 percent to their highest level in nearly three years, according to new figures from the National Association of Realtors.

U.S. home prices also rose for the second consecutive quarter in the three-month period ending Sept. 30, according to a separate report released today by Standard & Poor’s/Case-Shiller. However, the good news was tempered by yet another new survey showing that nearly one in four U.S. homeowners with mortgages are “underwater” on their home loans, owing more than their property is worth.
 
Existing home sales – including single-family homes, townhouses, condominiums, and co-ops – increased to a seasonally adjusted rate of 6.11 million in October, up from a revised figure of 5.54 million in September. It was the highest level of sales since February 2007 and exceeded the October 2008 level of 4.94 million by 23.5 percent.
 
Lawrence Yun, chief economist for the NAR, attributed the unexpectedly large gain to homeowners rushing to complete purchases before the expiration of the $8,000 first-time homebuyer tax credit, which has since been extended through April 30. He predicted a similar gain in November, following by a few months decline before another surge in spring and early summer.
 

Prices up for second consecutive quarter

 
U.S. home prices increased by 3.1 percent in the third quarter of the year, according to the S&P/Case-Shiller survey of 20 major housing markets, following an identical increase in the second quarter. Prices increased an average of 0.3 percent in September, the fifth consecutive monthly increase the survey has shown.
 
Home prices remain depressed compared to a year earlier, with prices down 8.9 percent from the third quarter of 2008. However, that annual rate of return is a marked improvement from the 14.7 percent annual rate of decline posted in the second quarter of 2009 and 19.0 percent decline in the first quarter of the year. The survey’s rate of return, which is considered a more reliable indicator of ongoing trends than monthly or quarterly reports, has been generally improving since the first of the year.
 

Negative equity rates a cause for concern

 
More sobering news was delivered today in the form of a new report showing that 23 percent of U.S. mortgage holders were “underwater” on their mortgages as of the end of September. The report, released today by First American CoreLogic, reported that 10.3 million homeowners owe more on their home loans than their property is worth.
 
Another 2.3 million homeowners have less than 5 percent equity in their homes and are at risk of going underwater as well, the report said. Together, the two groups make up 28 percent of all U.S. mortgages.
 
So-called “negative equity” is a result of falling home prices and is linked with increasing foreclosure rates. As homeowners find themselves owing more than their property is worth, many begin to give serious consideration as to whether it is worthwhile to continue making payments or to simply walk away from the property and allow it to be foreclosed upon.
 
It’s difficult to tell what kind of trend the new figures represent, however, because First American CoreLogic just changed its methodology for the new report, which covers the third quarter of the year. Previously, the study assumed that home equity lines of credit had been fully utilized and did not account for payments that reduce principal. Under the old method, the survey reported that one-third of borrowers were underwater in the second quarter of the year.
 
The majority of underwater mortgages were concentrated in just five states, which have all seen sharp declines in housing prices and high rates of foreclosure. Nevada had the highest rate of underwater mortgages at 65 percent, followed by Arizona at 48 percent; Florida, 45 percent; Michigan, 37 percent and California, 35 percent.
 

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