Existing Home Sales Held Back

National Association of Realtors reported a modest, 1.4 percent increase in existing home sales in October, creeping up to a seasonally adjusted annual rate of 4.97 million units.

 

Existing home sales continue to drift sideways, with a high rate of contract failures holding back a recovery.

The increase in existing home sales recovers only part of the 3 percent decline in September. Although existing home sales are 13.5 percent above the 4.38 million unit level observed in October 2010, they have changed little in the nine months since February - bouncing around a 5 million unit annual rate.

Sales of single-family homes edged up 1.6 percent to a seasonally adjusted annual rate of 4.31 million units, while condominium and co-op sales were unchanged at 570,000 units. Across the regions, gains in existing home sales occurred in the West (jumping 4.4 percent to an annual pace of 1.19 million units), Midwest (rising 2.8 percent to 1.1 million units), and the South (up 2.1 percent to 1.94 million), but a decline in the Northeast (down 5.1 percent to 750,000 units).

The housing inventory continued to trend down, falling 2.2 percent with 3.33 million existing homes available for sale at the end of October. At the current sales level, this represents an 8-month supply - an improvement on the 8.3 months in September and 10.6 months recorded in October 2010.

Contract cancellations rose sharply, with 33 percent of NAR members reporting contract failures in October. This compares to 18 percent in September and only 8 percent a year ago. Contract cancellations are typically the result of declined mortgage applications or the appraised value of a home coming in below the negotiated price. This typically results in a rejection during the loan underwriting process.

The relatively flat result for existing home sales in October reflects waning interest by investors. Investors' share of existing home sales edged down in October, with investors purchasing 18 percent of homes, compared to 19 percent in September and 22 percent in August. Investor sentiment has greatly influenced existing home sales over the past year, with weaker home sales corresponding to a decrease in investor share (and vice-versa).

- Courtesy of NAHB