Existing Home Sales Show Surprising Increase In October

Month after month, the news from the housing market has been pretty bleak. Last month it was less bleak.

In fact, sales of existing homes rose more than expected, rising 1.4 percent over September's total. They're up 13.5 percent from October 2010.

But Lawrence Yun, chief economist for the National Association of Realtors (NAR), says October's numbers should have been even better. For all the people who bought homes last month, even more tried to but couldn't.

“A higher rate of contract failures has held back a sales recovery,” Yun said. “Contract failures reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only eight percent a year ago, so we should be seeing stronger sales.”

Contract failures

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

“Other recent factors include disruption in the National Flood Insurance Program, and lower loan limits for conventional mortgages, which paradoxically force some of the most creditworthy consumers to pay unnecessarily higher interest rates,” Yun said.

But despite these lost sales, there are fewer homes on the market – something Yun and other real estate market expects see as a positive trend. Total housing inventory at the end of October fell 2.2 percent to 3.33 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.3-month supply in September. Inventories have been trending gradually down since setting a record of 4.58 million in July 2008.

Cash sales holding steady

All-cash sales accounted for 29 percent of purchases in October, little changed from 30 percent in September and 29 percent in October 2010. Investors make up the bulk of cash transactions and generally focus on distressed properties.

But there were fewer of those last month, another good sign. Foreclosures and short sales, typically sold at deep discounts, slipped to 28 percent of sales in October from 30 percent in September. They were 34 percent in October 2010.

The national median existing-home price for all housing types was $162,500 in October, which is 4.7 percent below October 2010. Yun says if more consumers could get approved for mortgages, both sales and prices would rise significantly.