Economists' Commentary: Existing Home Sales in September
October 23, 2009

By Lawrence Yun, Chief Economist, NAR

Sales surged in September. Existing home sales (single-family plus condos and coops) increased 9.4 percent in September to a seasonally adjusted annual rate of 5.57 million units from a 5.09 million unit pace in August (revised down from 5.10 reported earlier. Compared to the same month one year ago, existing home sales were higher by 9.2 percent.
Inventories at the end of September decreased by 7.5 percent and there were 3.63 million home available for sale. Based on the current sales pace it would take 7.8 months to exhaust the inventory. The months' supply of inventory at the current sales pace fell to 7.8 months - the lowest level in two and a half years (or more precisely since March 2007). I would say a consistent months' supply of less than 7 months would be needed for consistent price stabilization. We're almost there, but not quite.
The dent in inventory is helping lessen the severity of price declines. The national median existing home price in September was $174,900, which is a decline of 8.5 percent from one year ago. Though a decline from one year ago, it is the lowest percentage magnitude in over a year.
Regionally, home sales rose in all four major regions. From August to September seasonally adjusted sales changes were as follow:
In the Northeast, existing home sales increased 4.4 percent
In the Midwest, sales increased 9.6 percent
In the South, sales increased 9.0 percent
In the West, sales increased 13.0 percent
Prices were lower in all four regions. From one-year ago, prices were lower by 7.0 percent in the Northeast, 1.0 percent in the Midwest, 7.6 percent in the South and 15.1 percent in the West. Broadly speaking home values have fallen by 25% to 30% from the peak depending upon which price data is looked at. The Midwest region really did not encounter any housing bubble, yet prices have fallen there as well. But we are now seeing much less pressure for price to fall in the Midwest.
There is very little difference in the condo sales trend compared to the single-family home sales. Condo sales increased 9.7 percent while single family home sales rose 9.4 percent. But there is a continuing difference between the two property groups in terms of inventory, with condo inventory at 11.0 months supply while single-family inventory is steadily getting trimmed to a now-7.8 months' supply. No surprise then that the condo prices have experienced a larger price decline. Condo prices declined 11.7 percent while single family home price were lower by 8.1 percent. Please be mindful that the condo sales only make up about 15 percent of all sales.
Sales continue to be dominated in the lower priced homes. Sales of homes priced under $100,000 increased 22.5 percent. For homes priced at $100,000 to $250,000, sales rose 6.0%. Sales are down from one year ago for those homes priced above $750,000. In September, 70% of transacted homes were priced under $250,000.
By metro level, sales were strong in Miami, Houston, and New Orleans - with the latter two seeing a large year-over-year change because of depressed sales one year ago when a major Hurricane hit the region. Among the large metropolitan regions, sales were down from one-year ago in Atlanta, Indianapolis, Pittsburg, and San Antonio.
The annual survey of home buyers (not REALTORS®), suggests that the first-time buyer accounts for 45 percent of all buyers. The number of distressed sales, those that are short sales or foreclosed sales, made up 29 percent of all sales in September. It accounted for 45 to 50 percent of all sales late last year and in the early months of this year.
The home buyer tax credit stimulus measure is having its intended impact of lifting sales, lowering inventory, and lessening the price decline pressures. Sales in the past 3 months are at a 5.3 million unit pace versus the 4.6 million unit pace in the 3 months prior to the stimulus package. The jump in sales of roughly 15 percent from pre-to-post stimulus is occurring despite 4 million job losses over the same time period. And there are still a sizable number of people who are in a position to respond to tax incentives.
Are there financially qualified renters who are ready to enter the market? NAR estimates that roughly 5 million additional renters exist today versus in 2000 (before the housing market went through a boom) who have the necessary income today to buy a median-priced home. So there is plenty of pent-up demand that could be released into the market.
The housing market is very close to reaching the point of a self-sustaining recovery. When home values show consistent stabilization or even a slight increase, then the buyer fear-factor will no longer be at play. We are ever so close to reaching that self-propelling housing market recovery. But without an extension in the home buyer tax credit the housing market could face a double-dip recession.
We have to be mindful that the tax credit is not only about people in the market. Despite spectacular gains in the stock market, principally from the financial sector recovery, most of the 75 million home-owning families have more wealth tied to their homes. Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet. We're getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history
If home values do not stabilize, expect re-default rates to soar on recently modified mortgages and the first-time foreclosures to ramp up again. Getting trapped in the vicious cycle of lower prices fueling foreclosures and further pressuring lower prices and all the accompanying economic damage is a possibility as well. Why then take the chance when the home buyer tax credit extension and expansion will help firm up the foundation for a sustainable recovery.
Finally, let's be clear. When money is dangled in their faces, bad players will look to cheat the system. Knowing this, it is very troubling that there are no tight government safeguards in place to prevent abuse. All fraud needs to be prosecuted to the fullest extent of the law. We cannot have a good, working program be slammed by few rotten individuals. Quickly eliminate the bad and keep the good because the vast number of legitimate middle-class home buyers is responding to the tax incentives and in the process helping the broader economy to recover.

"Copyright National Association of REALTORS®, Reprinted with permission."