Home resales in September clocked the largest monthly increase in 26 years as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. Sales jumped 9.4 per cent to a seasonally adjusted annual rate of 5.57 million last month, from a downwardly revised pace of 5.1 million in August, the National Association of Realtors said Friday.
That pace was the strongest in two years and beat Wall Street forecasts. Sales had been expected to rise to an annual rate of 5.35 million, according to economists surveyed by Thomson Reuters.
"There's a miniboom going on in the housing market," said Thomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications.
Nationwide sales are up nearly 24 per cent from their bottom in January, but are still down 23 per cent from four years ago.
But prices continued to drag with foreclosures and short sales, where the mortgage exceeds the sales price. The median price last month was $174,900 (U.S.), down almost 9 per cent from $191,200 a year earlier, and slightly lower than August's median of $177,300.
The inventory of unsold homes on the market fell about 7 per cent to 3.63 million. That's less than an eight-month supply at the current sales pace, and the lowest level since March 2007.
Sales rose especially in the west, where they grew 13 per cent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.
First-time homebuyers and investors are snapping up those homes and taking advantage of low mortgage rates. They can also receive a tax credit of 10 per cent of the sales price, up to $8,000, if the sale is completed by the end of November.
The credit is so important to some buyers they are adding a clause to their contracts, allowing them to back out if the sale doesn't close by Nov. 30. But, economists note that cheap foreclosures and mortgage rates are also adding to the boom.
"We think the housing market has touched bottom and it is now only a matter of time until home prices stabilize – something that we anticipate to occur in late 2010," wrote Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Prices could fall further because rising unemployment leads to more foreclosures. The jobless rate, currently at 9.8 per cent, is expected to rise as high as 10.5 per cent next year, causing more people to fall behind on their mortgages.
"There's more supply that's going to come into the marketplace," said Stan Humphries, chief economist at real estate website Zillow.com. "That additional supply will outpace demand."
With concerns about the housing market still prominent, Congress is considering several proposals to extend the tax credit. Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend it through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.
Realtors and homebuilders are loudly in favour, arguing that the tax credit is crucial to get the housing market back on its feet.
"We are not there in terms of removing the consumer fear factor," said Lawrence Yun, the National Association of Realtors' chief economist.
One potential roadblock to an extension also emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent.
Source: Associated Press
