Economist's Commentary: October 24, 2008
Existing Home Sales in September
By Lawrence Yun, Chief Economist
Existing home sales increased 5.5 percent in September to 5.18 million units (seasonally adjusted annualized rate) from 4.91 million units in August. From one year ago, September sales were 1.4 percent higher. It marks the highest sales activity in 13 months and it is the first year-over-year increase in nearly 3 years.
Buyers, particularly in regions where home prices have come down significantly, are taking advantage of greatly improved affordability conditions. Mortgage rates have been fairly stable at historically favorable rates despite all the credit market turmoil in Wall Street because of the explicit government involvement in guaranteeing the bonds of Fannie and Freddie. Lower prices and lower rates are the keys driving buyers back to the market.
Who are these buyers: Vulture funds and speculators? The answer is that 80 percent of buyers according to the latest REALTOR survey regarding their buyer clients are primarily homeowners. The 80 percent is a bit higher than the historic average of 75 percent, with the other buyers comprising investor and vacation home buyers.
With sales rising, inventories are getting trimmed. There were 4.27 million homes listed for sale at the end of September, which is a decrease of 1.6 percent from the prior month. The current inventory now represents a 9.9 months supply at the current sales pace. The months supply had surpassed 12 months several months ago, so the lower inventory is welcome news. Nonetheless, it is still a buyer's market. The national median existing home price in September was $191,600 which is a decline of 9.0 percent from one year ago. Inventory will need to dip to 7 months before we encounter stabilization in home prices at the national level. All real estate is local, so there are numerable markets experiencing price gains.
Regionally, existing home sales increased in 3 of 4 regions:
- In the Northeast, sales fell 1.2%
- In the Midwest, sales increased 4.4%
- In the South, sales increased 2.2%
- In the West, sales increased 16.8%
Sales have been rising in California and Florida for several months and the momentum appears to be building with even a higher year-over-year sales increases with each passing month. The trend has expanded to Arizona and Nevada and northern Virginia. Now more markets are participating in the home sales recovery including Rhode Island, Minnesota, and Colorado. Sales in Houston, however, were pressed down by more than 30 percent from a year ago due to the impact of Hurricane Ike, while Dallas (a similar size market with similar local economic conditions) experienced essentially no change in home sales.
Prices were lower in all four regions. The price decline was the sharpest in the West region, falling 18.5%. Prices also declined: 5.4% in the Northeast, 7.9% in the Midwest and 4.1% in the South.
Regarding single-family versus condo market:
- Single family home sales rose 6.2% while condo sales were unchanged.
- Single family home price fell 8.6% while condo prices declined 10.2%.
The economy has clearly tipped into a recession, not only in the U.S. but globally. Without a housing market recovery the recession could turn into a prolonged deep one causing a contraction of 2 percent in GDP. That is about $300 billion lost in income and output for America. The way to lessen the damage is to get the housing market going. If buyers continue to show up then inventory will further get slashed and soon afterwards home prices can stabilize. Once home prices are known with clarity then the valuation of mortgage-backed securities will also be known with clarity and will help stabilize Wall Street.
Therefore, there should be further incentives for buyers to reach the market. In the upcoming likely stimulus package during the lame-duck session in Congress, NAR is calling for a removal in the repayment feature of the recently enacted home-buyer tax credit. Let's make it clear to consumers that if you buy a home, you get a clean tax-break without worrying about repayment. The budgetary cost of this will be about $40 billion, but it is money well spent to minimize a potential loss of $300 billion in the economy. Furthermore, a permanently higher loan limit will permit more consumers to have access to lower interest rate loans.
A seller down-payment assistance program for FHA loans is no longer starting in October. Given that this program had accounted for about a third of FHA loans in 2007 and FHA is playing a greater role in today's market, we will be carefully monitoring to assess the impact. Still, the broadening of the number of markets turning positive and rising affordability give me comfort that the home sales increases can be sustained. However, the recovery process can be greatly accelerated with another dose of housing stimulus.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
Comments? Questions? E-mail NAR Research.
NAR members, learn how you can add this commentary to your Web site, blog, or newsletter. Read more >
