Home sales surge 10.1 percent in October

A first-time homebuyer tax credit, historically low mortgage rates and falling home prices combined in October to propel existing home sales to their biggest monthly percentage increase in a decade.

Purchases of previously owned homes soared 10.1 percent last month, reaching an annual rate of 6.1 million, the highest sales level since February 2007, the National Association of Realtors reported Monday.

Compared with October 2008, existing home sales were up 23.5 percent last month. The annual rate of home sales bottomed out in January at 4.49 million, their lowest level since comparable record-keeping began in 1999. Since then, however, sales have risen 37 percent.

Despite the jump in home sales, many factors continue to weigh down the economy’s nascent recovery, including a double-digit unemployment rate and cash-strapped, debt-burdened households.

“October’s surge came from the tax credit for first-time homebuyers,” said Patrick Newport, U.S. economist at IHS Global Insight. “But given that the Mortgage Bankers Association’s purchase index dropped to its lowest level in 12 years in the latest survey week, a December sales plunge is likely,” Mr. Newport said.

“Sales are up an astonishing 19.8 percent over the last two months,” said Adam York, an economist at Wells Fargo. “Unfortunately, we do not expect this sales pace to be sustainable. Considerable payback may appear in November or December,” he said.

The first-time buyer’s credit, up to $8,000, was scheduled to expire at the end of November, encouraging many people to close their deals in time to qualify.

Earlier this month, however, Congress extended - and even broadened - the program through June 30. Homeowners who have lived in their houses for at least five years can now qualify for a credit up to $6,500 for a home purchase. Congress also raised the income limits for qualifiers to $125,000 for singles and $250,000 for couples. Previous limits were $75,000 and $150,000, respectively.

Historically low mortgage interest rates have contributed to increased affordability. The average mortgage rate in October for a 30-year conventional, fixed-rate loan fell to 4.95 percent, the third-lowest on record dating back to 1971, said Lawrence Yun, NAR chief economist. Mortgage rates dropped to 4.83 percent last week, according to mortgage-financing giant Freddie Mac.

Home sales rose in all four regions of the country last month, led by a 14.4 percent surge in the Midwest, a 12.7 percent jump in the South and a 11.6 percent increase in the Northeast. The sale of previously owned homes edged 1.6 percent higher in the West.

Sales of single-family homes increased 9.7 percent last month, the biggest gain since 1983. Condominium and co-op sales soared 13.2 percent.

Compared with October 2008, the median sales price of existing homes declined by 7.1 percent to $173,100. It was the smallest decline in more than a year. Foreclosures and other distressed properties, which accounted for 30 percent of sales last month, continued to put downward pressure on home prices, which have become much more affordable this year.

Foreclosure filings, exacerbated by mounting job losses and the record incidence of long-term unemployment, are expected to continue rising. They exceeded 300,000 in October for the eighth month in a row, according to data compiled by RealtyTrac Inc.

“The potential that the coming onslaught of foreclosures will send the housing market back down into a tailspin is thus also a downside risk for the broader economy’s emerging recovery,” said Celia Chen of Moody’s Economy.com. Mark Zandi, Moody’s chief economist, told the Joint Economic Committee last month that the recession ended in August. Moody’s economic forecast, however, expects the unemployment rate to remain highly elevated, averaging 10.6 percent during the fourth quarter of next year and edging downward to 9.6 percent for all of 2011.

Wall Street embraced Monday’s good news on the housing front, as the Dow Jones Industrial Average climbed 132.79 points, or 1.3 percent, to close at 10,450.95.