The National Association of Realtors' existing home sales report for September came in much stronger than expected today, with sales hitting their highest levels in more than a year.
Some highlights from the report:
Existing-home sales—including single-family, townhomes, condominiums and co-ops—rose 5.5 percent to a seasonally adjusted annual rate of 5.18 million units in September from a level of 4.91 million in August, and are 1.4 percent higher than the 5.11 million-unit pace in September 2007...
Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.
But while the figures may appear heartening at first, there are several reasons to expect to see more pain in future reports:
1. Distressed sales: NAR said that foreclosures and short sales are now making up more than a third of all transactions. "If one considers that distressed sales (foreclosures and short sales) are driving the sales numbers in the West, and to a certain extent in the other three regions, the rebound raises questions about whether it is sustainable," Patrick Newport, an economist at IHS Global Insight, said in a report.
2. Pre-credit-panic figures: It's also important to note the time period from which the data were pulled. "These sales are for September, so they reflect buying conditions in July and August—before the credit crunch intensified," economists at Goldman Sachs said in a report. "Pending home sales, to be released November 7, will provide an early read on how the resale housing market is faring through the intensification of the credit crunch."
3. The recession factor: The deteriorating state of the U.S. economy also threatens to punish the market further. "Looking out over the horizon, given the expected increase in the rate of unemployment and probable decline in income, it will be difficult for the housing sector to sustain the current pace necessary to burn off the existing inventory of homes at existing prices," Joseph Brusuelas, chief economist at Merk Investments, said in a report. "Thus, prices will have to adjust accordingly before the market completely stabilizes."