| Surge in Existing Home Sales Signals the Beginning of the End in Some Areas |
| Written by Jonathan Smoke | |
| 10.26.2008 | |
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Discuss this article on the forums. (0 posts) The National Association of Realtors released data on September existing home sales on Friday. The report was the most positive report we’ve seen since the downturn began in 2006. According to the report, total existing-home sales increased 5.5% in September to a seasonally adjusted annual rate of 5.18 million units from a level of 4.91 million in August. Year over year the September figure was 1.4% higher than the 5.11 million-unit pace in September 2007. Sales of single family homes rose even more strongly. Single-family home sales increased 6.2% to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August. Year over year the September figure was 3.8% above the 4.45 million-unit pace in September 2007. The increase is critical to see because prior housing downturns have all experienced a greater than 6% increase in single family sales month over month in at least one period at the end of the down turn as the chart below shows.  The signal isn’t perfect in identifying the end of a downturn as there are times when the signal occurs prematurely (e.g., July 1980, September 1980, February 1991). The signal also can occur when there are no downturns. The new reading is an encouraging sign. We haven’t seen a month-over-month increase in single family homes of this level since January 2002 when we were coming off the slight decline seen following 9/11. Also, September’s 12 month moving average of month-over-month changes in existing home sales turned positive for the first time since February 2006. Unfortunately the story wasn’t consistent by region. Total existing-home sales in the West jumped 16.8% to an annual rate of 1.25 million in September. In the Midwest, they increased 4.4% to a pace of 1.19 million. In the South, they increased 2.2% to a pace of 1.90 million. But in the Northeast, they slipped 1.2% to a pace of 840,000. This may be why the signal isn’t as strong as in January 1983 or February 1992. It may be that the West has turned the corner first but the remaining areas of the country haven't reached a sales bottom yet. Clearly prices haven’t yet reached a bottom nationally or regionally as prices were down by every measure and in every region. The price decline is no doubt impacted by the number of foreclosure sales, and these lower prices are likely the trigger for the increase in sales. We won’t reach a complete housing recovery until we see improvement in both sales and prices, but given the large inventories, a high rate of foreclosure activity and a high amount of vacant for sale homes, we need to see sales improve before we can see prices stabilize. Therefore as long as we see sales stabilize and generally increase form this point forward, prices will likely reach bottom in aggregate over the next 12 months. 
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