Sales of existing homes rose by the largest amount in more than five years in September, driven by foreclosures that lowered the prices of properties.
Analysts cautioned against reading too much into the gain, noting that it reflected conditions before the latest upheaval in financial markets increased the likelihood of a recession in the overall economy.
The National Association of Realtors reported that sales of existing homes rose by 5.5 percent from August to September to a seasonally adjusted annual rate of 5.18 million units – far better than the flat results analysts had expected. On an unadjusted basis, sales were up 7.8 percent from September last year.
But even with the gain in sales, prices kept falling. The median sales price has dropped to $191,600, down by 9 percent from a year ago.
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The boost to sales from lower prices may be short-lived as banks withhold financing on mounting concern that record foreclosures will hurt profits and depress values even more. The collapse in lending signals the housing recession will extend well into a fourth year.
“This may be a temporary bump as we clear out these foreclosed properties,” said Adam York, an economist at Wachovia Corp. in Charlotte. “As the meltdown really hits these figures in late October and November, that's when we could see some retracement.”
Sales rose 1.4 percent compared with a year earlier, the first year-over-year increase since November 2005. Resales totaled 5.65 million in 2007.
Today's figures compare with the 4.86 million level reached in June, the lowest in a decade and 33 percent down from the record reached in September 2005.
Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent.
Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from closings and may reflect contracts signed a month or two earlier.
Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent.
As home sales shrank, builders scaled back construction projects by 64 percent through September from a peak in January 2006, the biggest decline since at least 1959. Work began last month on the fewest single-family homes in 26 years, the Commerce Department reported last week.
“The housing downswing is really not exactly even nearing a bottom at this point,” David Seiders, chief economist at the National Association of Homebuilders, told Bloomberg Television this week.
In Richmond, Va., Jack Jebo sold his three-bedroom house last month for $267,000, after lowering his price $18,000. He carried two mortgages for two months before the house sold.
“In retrospect, (the experience) probably wasn't too bad,” said Jebo, 32, an attorney. “At the time, it probably felt pretty difficult because we didn't get an offer before we lowered the price.”
Lawrence Yun, chief economist for the Realtors, said there were some glimmers of hope that the bottom of the housing slump may be near. He said that a sales turnaround first seen in California was beginning to broaden to other regions of the country including Colorado, Kansas, Minnesota, Missouri and Rhode Island.
The number of unsold existing homes on the market dropped by 1.6 percent in September to 4.27 million units. That marked the second month in a row inventories have dipped.
Bloomberg News contributed.