Existing-home sales in October rose to the highest level in more than two years, according to a report released Monday, driven by the popularity of a credit for first-time home buyers. The surge far outpaced expectations and nurtured hope that the stubbornly frail housing market might be on the upswing.
Sales of existing homes were up 10.1 percent in October to an annual rate of 6.1 million, the National Association of Realtors said in a report Monday — a level last seen in February 2007, before the collapse of the housing sector. Analysts surveyed by Bloomberg News had predicted a 2.3 percent increase.
The group attributed the gain to the popularity of a government-financed credit of up to $8,000 for first-time home buyers, which was renewed earlier this month. In addition, consumers are taking advantage of lower prices and mortgage rates, even at a time of pervasive unemployment and uncertainty over the pace of economic renewal.
Inventories continued to shrink, the report said, and prices, while still lower, fell by the smallest amount in more than a year.
Sales were up 23.5 percent from the October 2008 rate of 4.94 million. In addition, sales for the 12-month period from October 2008 to October 2009 reached 4.4 million, up slightly from the October 2007 to October 2008 levels.
The gains surprised even the Realtor group’s chief economist, Lawrence Yun, who cautioned that future results may be more modest. “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,” he said.
Economists closely monitor trends in home sales because their effects ripple through the economy. Consumers, in effect, are not just buying houses: they are also furnishing them with items like washers, tables and mattresses. Once Americans begin to spend again, analysts expects businesses will begin hiring and the economy will be on firmer ground.
The report examined sales of single-family homes, as well as condos and co-ops. The group revised its September figures, saying home sales rose by 8.8 percent rather than the 9.4 percent it originally reported.
Even amid inklings of a turnaround for housing market, there are still reminders that the sector remains very weak.
Just last week, the government reported that builders broke ground on new homes at the slowest rate in six months. Construction of apartment buildings reached the lowest level since the department started collecting housing data in 1959, and building permits, an indicator of future construction, also fell.
Celia Chen, senior director at Moody’s Economy.com, noted that sales of existing homes — especially those that have been foreclosed and tend to be cheaper — may be slowing the pace of home construction, as builders grapple with low demand for expensive new homes.
“The housing sector needs help,” she said. “It’s important to shore up the market because that is a large part of the economy and will be helpful in stabilizing the broader economy.”
And while home sales may be picking up, consumers still face slender paychecks and are struggling to keep up with bills. The Mortgage Bankers Association said last week that nearly one in 10 homeowners with mortgages — about five million households — was at least one payment behind in the third quarter.
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