U.S. Home Sales Rise 10% In October

By Shobhana Chandra

Nov. 23 (Bloomberg) -- Sales of existing U.S. homes increased more than forecast in October to the highest level since February 2007, spurred in part by a tax credit that lured first-time buyers.

Purchases rose 10.1 percent to a 6.1 million annual rate from a 5.54 million pace in September, the National Association of Realtors said today in Washington. The median sales price decreased 7.1 percent from October 2008, the smallest decline in more than a year.

Cheaper homes and stimulus such as the $8,000 incentive, extended and expanded by the Obama administration this month, have revived an ailing housing market that contributed to the worst economic slump since the Great Depression. Further improvement that would aid the economy’s recovery depends on an easing in unemployment and foreclosures.

“It’s an impressive increase and shows a lot of pent-up demand for housing,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Buyers have enough confidence to take the plunge. The housing market recovery will be a durable one.”

Existing home sales were forecast to rise to a 5.7 million annual rate, according to the median forecast of 66 economists in a Bloomberg News survey. Estimates ranged from 5.2 million to 6 million, after an initially reported 5.57 million rate in September.

U.S. stocks extended gains after the report. The Standard & Poor’s 500 Index rose 1.9 percent to 1,111.52 at 10:18 a.m. in New York.

Year Earlier

Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Purchases of existing homes rose 23.5 percent in October compared with a year earlier. The median price fell 7.1 percent from a year ago to $173,100.

The number of previously-owned unsold homes on the market fell 3.7 percent to 3.57 million. At the current sales pace, it would take 7 months to sell those houses compared with 8 months at the end of the prior month. The months’ supply is the lowest since February 2007.

The share of homes sold as foreclosures or otherwise distressed properties rose to 30 percent from 29 percent in September, NAR chief economist Lawrence Yun said in a press conference today.

A “similarly robust” sales gain may occur this month, he said.

“With such a sales spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer,” Yun said.

Single-Family Gains

The report showed sales of existing single-family homes rose 9.7 percent, the biggest gain since 1983, to an annual rate of 5.33 million. Sales of condos and co-ops increased 13.2 percent to a 770,000 rate.

Purchases rose 11.6 percent in the Northeast, 14.4 percent in the Midwest, 12.7 percent in the South and 1.6 percent in the West.

Sales of previously owned homes, which make up more than 90 percent of the market, are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new-home sales, recorded when a contract is signed, a more timely barometer.

The Commerce Department may report on Nov. 25 that new home sales rebounded to a 405,000 annual percent in October, according to the Bloomberg survey.

Tax Credit

Home construction seized up last month as builders waited to find out if the first-time homebuyer tax credit would end, a Commerce Department report showed last week. Builders in October broke ground on the fewest houses since April’s record low annual pace.

Sales and construction may get another boost after President Barack Obama on Nov. 6 extended the incentive until April 30. Earlier, buyers had to close the transaction by Nov. 30 to be eligible. The government also expanded the program to include some current owners.

Borrowing costs may remain low as the Federal Reserve has signaled it’ll keep the benchmark interest rate near zero for an extended period. The average rate on a 30-year fixed mortgage fell last week to 4.83 percent, the lowest since May, according to Freddie Mac.

While low rates and government aid are making it easier to buy a home, the labor market remains a risk. The unemployment rate, which rose to a 26-year high of 10.2 percent last month, will stay above 10 percent through the first half of 2010, a Bloomberg survey showed.

Foreclosure Filings

Foreclosure filings surpassed 300,000 for an eighth straight month in October as rising joblessness made it tougher for homeowners to pay bills, according to RealtyTrac Inc. data.

Some companies see a potential for stronger demand. Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, has signed contracts or options to buy 4,000 land lots in preparation for a market recovery, said Chief Executive Officer Ara K. Hovnanian. The Red Bank, New Jersey-based builder had reduced its land holdings during the recession.

“Prices are ridiculously low in some markets,” he said at a conference in New York on Nov. 17. “That’s not going to stay.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net