WASHINGTON – Sales of existing homes rose sharply in September, offering a glimmer of hope for the troubled housing market, but analysts cautioned that many of the sales were driven by foreclosures that are still pushing prices lower.
The National Association of Realtors said Friday that sales of existing homes rose by 5.5 percent in September compared to August, the best showing since a 5.6 percent increase in July 2003, during the five-year housing boom. It was the first year-over-year sales increase in since November 2005.
But home prices are still falling. The median sales price has dropped to $191,600, down by 9 percent from a year ago.
Lawrence Yun, chief economist for the Realtors, said a sales turnaround first seen in California was beginning to broaden to other regions of the country including Colorado, Kansas, Minnesota, Missouri and Rhode Island.
He said housing may be starting to find a bottom but the turnaround could be aborted by the near-certainty that the country has fallen into a recession.
Michelle Meyer, an analyst with Barclays Capital, said figures from the Realtors show that 35 to 40 percent of national home sales are “foreclosure-linked.”
“While it is encouraging that foreclosures are clearing the market, it results in even lower home prices,” she said in a note.
Patrick Newport, an economist with IHS Global Insight, agreed and said the sales bump is not sustainable.
“Distressed sales will remain a factor over the next few months,” he said. “However, a tight labor market, tight credit and wide mortgage spreads should dampen demand enough to depress sales going forward.”
Inventories of unsold existing homes dropped by 1.6 percent in September to 4.27 million units which would be a 9.9 months supply at the September sales pace, still a historically high level.
Yun, of the Realtors, urged Congress to pass a second stimulus package including measures that would bolster the housing market.
In a further effort to bolster the housing market and deal with record high levels of mortgage defaults, Shelia Bair, the head of the Federal Deposit Insurance Corp., is pushing Treasury to include in the $700 billion rescue package for the financial system a new program to prevent more mortgage foreclosures.
Under Bair’s proposal, the government would provide guarantees for mortgages that have been reworked by banks to lower the payment schedules to more affordable levels.
The rise in September sales pushed activity to a seasonally adjusted annual rate of 5.18 million units last month. Sales were up 9.6 percent on a year-over-year basis before adjusting for seasonal changes.
By region of the country, sales soared by 16.8 percent in the West and rose a more moderate 4.4 percent in the Midwest and 2.2 percent in the South. The only region of the country which saw a decline was the Northeast, where sales fell by 1.1 percent.
Housing has been suffering through its worst downturn in decades following a five-year boom that ended in 2006. Since that time sales and prices have plummeted.
Builders have responded to the huge glut of unsold homes by sharply cutting back on construction as their confidence levels have fallen to record lows. The National Association of Home Builders is projecting that construction of new homes and apartments will total just 936,000 units for this year, which would be the weakest performance since 1945.