In September, existing home sales continued their rebound for the second month following a 27 percent plunge in July. Sales rose 10.0 percent to a pace of 4.53 million annualized units. Sales have been volatile in recent months. Sales were boosted in the spring due to the homebuyer tax credit. When the credit expires, sales plunged. Now, sales are beginning to recover, though they are still at a pace lower than the pre-credit surge. From a year-prior, sales were down 19 percent.
With the increase in sales over the month, the months supply of inventory fell to 10.7 from 12.0. Though this is an improvement, it is still above the ratio of most of the past year. Long term, the historical normal is around 5 months of inventory. Ratios well above this level are historically correlated with short term price declines. Until the sales pace increases and/or the supply of inventory gets further worked off, price stability is unlikely. In September, the median sales price fell 3.3 percent to $171,700. This was the third month of price declines. From a year earlier, prices were down 2.4 percent.
This trend needs to be examined closely by those on Capital Hill and understand its implications. Home sales, in the long-run, will continue to increase as median price declines. However, some of those suggesting to eliminate the home mortgage deduction need to understand that any sort of progress will be eliminated and the housing market will tank even further. Home buyer incentives need to be enacted to bring more stability to the volatile market.
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