Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink (updated) [View All]

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Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink

Driven by the first-time buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, while inventories continue to decline, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.

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. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”

Now that the tax credit has been extended and expanded, potential buyers have until April 30 to have a contract in place. “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 cancelled or fell through – there likely are many more buyers who were attempting to purchase but simply ran out of time,” Yun said.

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Existing Home Sales Rise 10.1 Percent

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This is, of course, good news, but the question is how much of the increase is being driven by the government’s tax credit program to help first-time homebuyers, and how much of it would have occurred even without the tax credit (the program has been extended through April, but that wasn’t known for much of the month so some of these sales represent a rush to beat the deadline).


Via Calculated Risk - Click on graph for larger image.

That’s not a question we can answer with precision at this point - the data that are needed are not yet available - but the increase did surpass expectations leading to some confidence (and a market rally) that there was more to the increases than just the government program. I am hopeful, the numbers are encouraging, and the inventory decline is good news in any case, but I’ll withhold jubilance over these numbers until it becomes clear the recovery can sustain itself without the government’s help.