Low Prices on Foreclosures Lift Sales of Existing Homes

Sales of existing homes rose in September as buyers in some of the hardest-hit real estate markets snapped up foreclosures at bargain prices, a real estate industry trade group reported yesterday.

Sales of single-family houses, townhouses, condominiums and cooperatives rose 5.5 percent in September from the previous month to a seasonally adjusted annual rate of 5.18 million units, the highest level in a year, according to the National Association of Realtors. They were up 1.4 percent from the same time a year ago, marking the first time since November 2005 that sales have been above year-ago levels.

"The sales turnaround, which began in California several months ago, is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island," Lawrence Yun, the group's chief economist, said in a statement.

But turmoil in the world's financial markets this month may disrupt that momentum. Many economists are predicting recession. Unemployment numbers are rising. Interest rates have been climbing. Home price declines continue to put pressure on homeowners who want to refinance or sell. And the number of mortgage applications for home purchases last week fell to the lowest level since 2001.

Yesterday's report reflects deals that were closed in September but may have been signed in July or August.

"What you're seeing is lingering strength from the summer that will be more than offset by what has happened since then," said Michael Larson, an analyst at Weiss Research.

"My gut tells me October numbers are going to be ugly," said Patrick Newport, an economist at Global Insight. "This economy is really going down.

Many analysts who track the housing market had forecast a rise in September sales based on earlier reports from California and other localities. But the increase mildly exceeded expectations and suggests that low home prices managed to pry buyers off the sidelines.

The median price of existing homes in September was $191,600, meaning half the homes sold for more and half for less. That's down 9 percent from a year ago, when the median was $210,500.

Foreclosures helped drag down prices. Distressed sales are currently 35 to 40 percent of transactions, the Realtors group said.

Low prices helped whittle down the bloated supply of homes for sale, which fell 1.6 percent to 4.27 million at the end of September. If sales continue at the same pace, that would leave a 9.9-month supply of homes, still well above the five- to six-month supply found in a healthy market. But, the drop in inventory is the second monthly decline in a row since inventories peaked in July.

The biggest sales gains occurred in markets with frothy prices during the housing boom. The sharpest gain was in the West, where sales jumped 16.8 percent to an annual rate of 1.25 million. The median price in the West was $253,600, down 18.5 percent from a year ago.

In the South, which includes the Washington region, sales rose 2.2 percent. In the Midwest, sales increased 4.4 percent. Prices were down in both regions, by 4.1 percent and 7.9 percent respectively. The Northeast was the only region to see a drop in sales volume, with transactions down 1.2 percent and prices down 5.4 percent.