October Existing-Home Sales Rise Unexpectedly, But Still Weak

Sales of previously owned homes in the U.S. rose in October while the number of homes on the market continued to decline, according to the National Association of Realtors. Although falling property values and near record-low borrowing costs are starting to appeal to homebuyers, a growing trend of last minute cancellation suggests that even those who are looking to buy are worried about the housing market.

This indicator is thought to be a good measure of demand in the real estate sector.

Purchases increased 1.4 percent to a seasonally adjusted annual rate of 4.97 million in October from a downwardly revised 4.90 million in September, and are 13.5 percent above the 4.38 million unit level in October 2010. Economists surveyed by Thomson Reuters projected a 4.85 million rate.

The market has been fairly steady but still at a lower than desired level. Sales recovery has been held back by a higher rate of contract failures.

Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions. Many people who are attempting to buy homes are thwarted in the process, said Lawrence Yun, NAR chief economist.

Contract failures reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago, so we should be seeing stronger sales, Yun added.

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

An ongoing positive trend is a steady decline in the number of homes on the market. Total housing inventory at the end of October fell 2.2 percent to 3.33 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.3-month supply in September. Inventories have been trending gradually down since setting a record of 4.58 million in July 2008.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.07 percent in October from 4.11 percent in September; the rate was 4.23 percent in October 2010.

The national median existing-home price for all housing types was $162,500 in October, which is 4.7 percent below October 2010.

Distressed homes - foreclosures and short sales typically sold at deep discounts - slipped to 28 percent of sales in October from 30 percent in September (17 percent were foreclosures and 11 percent were short sales); they were 34 percent in October 2010.