U.S. Economy: Existing Home Sales Surge on Tax Credit (Update1)
By Bob Willis
Oct. 23 (Bloomberg) -- Sales of existing U.S. homes surged a record 9.4 percent in September as Americans rushed to take advantage of a tax credit for first-time buyers before it expires next month.
Purchases rose to a 5.57 million annual rate, more than forecast and the highest in more than two years, the National Association of Realtors said today in Washington. The median price fell at the slowest pace in a year as the number of houses on the market shrank.
While sales may cool unless Congress decides to extend the $8,000 credit due to expire Nov. 30, lower prices and mortgage rates have also made houses more affordable and may cushion any decline. Smaller price decreases show the market is stabilizing as demand improves, easing the strain on consumer finances that deepened the worst recession since the 1930s.
“The excess supply of unsold homes has declined a lot and this reduces the downward pressure on home prices,” said Harm Bandholz, an economist at UniCredit Global Research in New York. “An improvement in house prices is an important condition for an increase in housing wealth and therefore higher willingness of households to start spending again.”
Stocks retreated, wiping out the week’s gains, as a decrease in oil prices hurt energy shares and disappointing results from the largest U.S. railroad hurt industrials. The Standard & Poor’s 500 Index closed down 1.2 percent at 1,079.60 in New York.
Record Gain
The September increase in combined sales of single-family houses and condominiums was the biggest since comparable records began in 1999.
Existing home sales were forecast to rise to a 5.35 million annual rate, according to the median forecast of 76 economists in a Bloomberg News survey. Estimates ranged from 5 million to 5.6 million, after an initially reported 5.1 million rate in August. Resales reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.
Purchases of existing homes were up 9.2 percent compared with a year earlier. The median price fell to $174,900, down 8.5 percent from a year ago and the smallest decrease in 13 months.
The number of previously owned homes on the market dropped 7.5 percent to 3.63 million in September. At the current sales pace, it would take 7.8 months to sell those houses, the lowest level since March 2007. A seven months’ supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun said in recent months.
Distressed Sales
The share of homes sold as foreclosures or otherwise distressed properties was 29 percent in September from 31 percent in August, Yun said.
Today’s report showed sales of existing single-family homes climbed 9.4 percent, the biggest gain since 1986, to an annual rate of 4.89 million. Sales of condominiums and cooperatives increased 9.7 percent to a 680,000 rate.
Purchases increased in all four regions, led by a 13 percent surge in the West. Purchases climbed 9.6 percent in the Midwest, 9 percent in the South and 4.4 percent in the Northeast.
Purchases of previously owned homes, which make up more than 90 percent of the market, are tabulated when sales close and therefore reflect contracts signed a month or two earlier. Sales of newly built residences, which make up the rest, are counted when a contract is signed, and may therefore cool months before the tax credit expires. Buyers must close before the Nov. 30 deadline to be eligible for the tax credit.
Extend Credit
Last month’s sales were “heavily dependent” on the tax credit, the NAR’s Yun said in a press conference.
The Realtors’ group and the National Association of Home Builders are lobbying to extend the first-time homebuyers credit on concern demand will wane after it lapses. Lawmakers this week took up the call.
“The work of stabilizing the housing market won’t be done” when the credit expires next month, Senate Banking Committee Chairman Christopher Dodd said during a panel hearing. “We still need to use every tool at our disposal to fix this problem.”
Dodd, a Democrat from Connecticut, and Republican Senator Johnny Isakson of Georgia, a former real estate agent, urged their colleagues to extend the credit through next June.
The Federal Reserve this week said its 12 district banks saw “stabilization or modest improvements” in many areas of the economy, led by housing and manufacturing. “Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said in its Beige Book of economic conditions in September and early October.
Housing-related companies are still trying to recover. USG Corp., North America’s largest maker of gypsum wallboard, posted its eighth straight net loss last quarter as sales dropped 32 percent from the same time last year.
“The residential housing market appears to have stabilized, but it has done so at a very low level,” Chief Executive Officer William Foote said Oct. 21 on a conference call with analysts.
To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net.
Last Updated: October 23, 2009 17:18 EDT 
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