On the Market: Existing home sales grow in October
November 29, 2009
The National Association of Realtors reported that existing-home sales showed a gain in October thanks in part to homebuyer tax credits.
Existing-home sales — including single-family, townhomes, condominiums and co-ops — grew 10.1 percent to a seasonally adjusted annual rate of 6.1 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94-million-unit level in October 2008. National sales activity was at the highest pace since February 2007 when it hit 6.55 million, the Realtors group reported.
Lawrence Yun, chief economist for the group, said he was surprised by the size of the gain.
"Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," he said. "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."
Now that the tax credit has been extended, potential buyers have until April 30 to have a contract in place.
"There is still a large pent-up demand that can be tapped before the tax credit expires. Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was canceled or fell through — there likely are many more buyers who were attempting to purchase but simply ran out of time," Yun said.
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Historically low interest rates also are boosting the market.
"Mortgage interest rates last month were the third lowest on record dating back to 1971," Yun said. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reported that the 30-year rate dropped to 4.83 percent.
1st-time homebuyers set market share record
First-time homebuyers reached the highest market share on record during the past year, according to the latest consumer survey of homebuyers and home sellers.
Paul Bishop, National Association of Realtors vice president of research, said several factors have been at play.
"Tax incentives, record high affordability conditions and a pent-up demand brought a record share of first-time homebuyers into the market," he said. "These buyers are critical to housing and a general economic recovery because the market always heals from the bottom up — they absorb inventory, free existing owners to make a trade and stimulate related goods and services."
The number of first-time homebuyers increased to 47 percent of all home sales from 41 percent of transactions in last year's study and was the highest on record dating to 1981. The previous high was 44 percent in 1991.
"It's interesting to note the last cyclical peak of first-time homebuyers was during the last noteworthy economic downturn, with first-time buyers starting the chain reaction that led the nation out of recession," Bishop said.
The profile shows that the median age of first-time buyers was 30 and the median income was $61,600. The typical first-time buyer purchased a home costing $156,000, down from $165,000 in the 2008 study, and plans to stay in that home for 10 years.
Fifty-five percent of entry-level buyers reported they financed their purchase with a Federal Housing Administration loan, and another 8 percent used the Veterans Affairs loan program.
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