Existing home sales increased substantially during September, no doubt being spurred by the $8,000 tax credit going to first time home buyers. That credit expires at the end of November, and if it is not extended we can anticipate a slow down in home sales, much as auto dealers saw a 25% to 50% drop in business after "cash for clunkers" expired. 45% of September's sales were to first time home buyers.
The 9% increase from August brought the annualized rate to 5.6 million, the highest in two years. The year over year increase was 9% as well. Here's the historical chart:
Prices continue to fall, and are 9% below a year ago at an average price of $175,000. About 30% of all sales were distressed, which certainly affects the average price calculation. The inventory of unsold homes declined substantially, and at 7.8 months is getting close to the 6.0 month average that we saw back in "normal" times. House affordability continues to increase, driven by declining prices and home mortgage interest rates which were 5.1% in September for a conventional 30 year loan.
If the inventory continues to decline, prices will stabilize and the number of transactions will increase as buyers sense a bottom. Dark clouds on the horizon include sellers who have been waiting for a year to sell (which will put upward pressure on inventories) and a wave of liar loans that are being reset in the first half of 2010. And the expiration of the first time home buyer credit.
Our residential business reflects this sales rate improvement. While not out of the woods, the positive trends are encouraging.