November existing-home sales surge

Spending cuts on commercial building projects in the third quarter contributed to the GDP downgrade.
Spending cuts on commercial building projects in the third quarter contributed to the GDP downgrade. (Mel Evans/associated Press)
By Dina ElBoghdady and Neil Irwin
Washington Post Staff Writer
Wednesday, December 23, 2009

Federal programs designed to jump start the housing market helped boost sales of previously owned homes to their highest level since February 2007 and whittle down the excess supply of homes on the market in November.

The National Association of Realtors reported on Tuesday that sales of existing single-family homes, townhomes, condominiums and cooperatives rose 7.4 percent in November from the previous month to a seasonally adjusted annual rate of 6.54 million homes. Sales were up 44 percent from a year ago, the highest annual gain since the group started tracking the data in 1999.

A separate report released Tuesday shows that the economy grew at a more tepid pace than thought over the summer, confirming that the nation's return to growth earlier in the year was less than resounding. Gross domestic product rose at a 2.2 percent annual rate in the July-to-September quarter, less than the 2.8 percent most recently estimated, and well below the 3.5 percent the government originally announced.

But details in the GDP report, along with the new housing numbers, suggest that the economy is growing at a more rapid clip in the fourth quarter. Businesses drew down inventories more rapidly than previously thought, which lays the groundwork for an economic bump as companies rebuild those inventories, and many forecasters now think that the economy is growing at a 3 percent or higher rate in the fourth quarter.

The Realtors group attributes the rise in home buying to a federal program that helped push down interest rates and a rush to take advantage of a tax credit for first-time buyers that was due to expire Nov. 30. The tax credit has since been extended and expanded to include other types of buyers. But some analysts singled out low prices as the key driver.

"Clearly, the tax credit and the feds meddling in the mortgage market has helped add an extra kicker to home sales in the short term, but that's not the only factor at work," said Michael D. Larson, a housing analyst at Weiss Research. "As housing prices fall, home ownership becomes competitive with renting, and buyers start to come out of the woodwork."

A huge volume of aggressively priced foreclosures has helped drag prices down. Distressed properties made up 33 percent of all sales in November and continue to distort median prices in every region of the country, the Realtors group reported.

The median price for existing homes was $172,600 in November, down 4.3 percent from a year ago. In the South, which includes the Washington area, the price was $151,400, down 1.4 percent. But the median price in the District was up 5.9 percent, rising to $306,900 from $289,900.

As sales pick up, the excess homes clear out, which helps stabilize prices.

The supply of existing homes for sale at the end of November declined 1.3 percent to 3.52 million. If sales were to continue at the current pace, there would be a 6.5-month supply of existing homes on the market, down from a seven-month supply in October. Generally, a six-month supply is considered healthy.

Gross domestic product, which captures the value of goods and services produced within U.S. borders in a given time period, was revised downward because investment in software and other business investments was weaker, and inventories depleted more, than first thought. Also, personal consumption expenditures and government spending rose slightly less than estimated.

The 2.2 percent growth rate is below the level economists think the nation is capable of attaining in the long run, meaning that the United States was not climbing out of its deep economic hole in the third quarter. That helps explain why the job market has remained weak despite several consecutive months of apparent growth in production of goods and services.

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