Existing Home Sales Drop While New Home Sales at Two Year High

With five years of a troubled housing and mortgage market, home builder’s haven’t had much reason to build new homes.  Construction has been down for the entire period until recent sales activity which is spurring renewed activity.


On Wednesday, the Commerce Department reported that September new home sales increased 5.7 percent to a seasonally adjusted 389,000 unit annual rate.  This is the fastest pace since April of 2010, when sales were boosted by the first time home-buyer tax credit.  While August’s numbers weren’t as impressive, there was an 11.7% increase in prices that month year-over-year.  Recent sales are pushing down inventories of new homes, and construction hasn’t caught up, so more price pressure to the upside is expected.


During the housing crisis, the number of U.S. households dropped because people consolidated their households, moving in with friends and relatives.  This trend is beginning to reverse, with move-outs increasing demand for both new and existing homes.  The Federal Reserve’s purchasing of mortgage bonds is keeping interest rates low and helping to move buyers back into the market.


In what seems a contradiction to the improvement indicated by new home sales, the National Association of Realtors reports that existing home sales dropped by 1.7 percent last month to a seasonally adjusted annual rate of 4.75 million units.  Nationwide the median price of a resale home was $183,900 in September, up 11.3% from a year earlier.  This is probably due to fewer people selling under distressed conditions.


Regionally, existing home sales in the Northeast fell by 6.3 percent to an annual level of 590,000 units in September.  However, this is still 7.3% higher than September of 2011.  The median price in the Northeast was $238,700, up 4.1% from a year ago.  In other regions:


·      Midwest – September sales down 0.9%, up 9.6 percent year over year.

·      South – September sales rose by 0.5% and are 14.2 percent higher than September 2011.

·      West – Sales up 0.9 percent from previous year, but down by 3.4% in September.


In general, most economists agree that the housing market is improving.  However, while it sputters positive to negative month to month, it’s difficult to get excited.


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