The National Association of Realtors released the data on sales of existing homes in October Tuesday. They were up a bit, half a percent, the first increase in eight months. But why is that number important?
Monthly sales of existing homes provide a fairly clear snapshot of the health of the housing market. That’s because most of the action in real estate is in existing homes rather than in new ones. When sales volume slumps, as it has for nearly a year, it means something fundamental is keeping potential buyers and sellers from making deals.
Usually it's higher interest rates, and the cost of borrowing has played a role in the current slowdown. The average fixed rate 30-year mortgage is now 6.2 percent — not bad, but still more than a full percent higher than the rock bottom rates at the peak of the boom. Higher rates helped let the air out of the overheated housing market, but they but weren't the only factor. After several years of double-digit annual growth in many markets, lots of buyers pulled back, deciding prices were just too rich. Many would-be sellers wouldn't budge on stratospheric asking prices. The result: gridlock in the housing market.
Has that gridlock eased, or were the October sales numbers an aberration? By a nearly two-to-one margin, 49 economists recently surveyed by WSJ.com said the worst of the housing bust is over. But most still expect average home prices to fall next year.
Prices are steadily tumbling. The National Association of Realtors also reported today that the median sales price in October was $221,000 — a fall of 3.5 percent from a year ago. Home prices compared to the previous year have now fallen for three straight months, an unprecedented string of declines.
But those lower prices may be luring some buyers back into the market. And they may help explain why the pace of sales picked up in October.