Daily Real Estate News November 23, 2009
Driven by the home buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, according to the NATIONAL ASSOCIATION OF REALTORS®. At the same time, inventories have continued to decline.
Existing-home sales – including single-family, townhomes, condos and co-ops – surged 10.1 percent to a seasonally adjusted annual rate of 6.10 million units in October from a downwardly revised pace of 5.54 million in Sept., and are 23.5 percent above the 4.94 million-unit level in Oct. 2008. Sales activity is at the highest pace since Feb. 2007 when it hit 6.55 million.
Tax Credit Fuels Surge
Lawrence Yun, NAR chief economist, was surprised at the size of the gain. “Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “There is still a large pent-up demand that can be tapped before the tax credit expires. Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was canceled or fell through. There likely are many more buyers who were attempting to purchase but simply ran out of time,” Yun said. (Four of my current first time home buyers can personally attest to this!)
Historically low interest rates also are boosting the market. “Mortgage interest rates last month were the third lowest on record dating back to 1971,” Yun noted. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in Oct. from 5.06 percent in Sept.; the rate was 6.20 percent in Oct. 2008. Last week, Freddie Mac reported the 30-year rate dropped to 4.83 percent.
Inventory Declines
NAR President Vicki Cox Golder said strong demand by first-time buyers is creating some unusual conditions. “In parts of the country, especially in Southwestern states but also in Florida and suburban Washington D.C., we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said. “In fact, low-end inventory has become very tight in many areas and in some cases buyers are becoming more aggressive. In this kind of environment it’s important to work with a REALTOR® who can walk you through the process and help you negotiate a satisfactory deal,” Golder said.
Total housing inventory at the end of Oct. fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, down from an 8.0-month supply in Sept. Unsold inventory totals are 14.9 percent below a year ago.
“The supply of homes on the market is now at the lowest level in over two-and-a half years – we’re getting closer to a general balance between buyers and sellers,” Yun said. The last time the relative housing inventory was this low was in February 2007 when it also was at a 7.0-month supply. (Note: Some zip codes in Northern Virginia have been running as low as a 1.4 month supply! In a normal economy this would be considered a strong sellers’ market. That said, we are seeing prices being bid up by as much as 5-10 percent in those areas.)
“In the second half of 2010, if home values show consistent stabilization or even a modest increase, then home sales could remain at normal healthy levels because consumers would no longer be worried about a price over-correction,” Yun said. He added that low home prices also are contributing to extremely favorable affordability conditions. “With the abnormal drop in home prices over the past few years, the price-to-income ratio has fallen below the historic trend line,” Yun said. “This is adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970, but prices are beginning to flatten and are poised to rise next year.”
Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in Oct from a pace of 4.86 million in Sept, and are 21.4 percent above the 4.39 million-unit pace in Oct 2008. Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in Oct from 680,000 in Sep, and are 40.8 percent above the 547,000-unit level a year ago.
