Existing Home Sales See First Year-over-Year Increase in Five Years
MBA (10/27/2008) Vetz, Orawin
Economic data were sparse last week, with rare good news emerging from the housing markets. After hovering in a narrow range of 4.8 million to 5.0 million units over the past 10 months, total existing home sales jumped in September by 5.5% - the biggest increase in more than five years to 5.18 million Units.
Sales of single-family homes during the first nine months of this year were down by 14.8% from those during the same period last year. The year-to-date decline has been worse for condos at 21.8% lower than those last year.
Existing home sales in the West rose 34.4% from last year, marking the third consecutive month of year-over-year increases. The west was the only region where sales have increased from a year ago during this housing recession. While all other regions continued to show declines in home sales from a year ago, the drops have been the smallest in more than a year.
About 35 to 40 % of sales were foreclosure or short sales, according to the National Association of Realtors. Sales increased by 1.4% from September 2007 - the start of the financial turmoil - marking the first year-over-year increase since November 2005 thanks to a 34% surge in sales in the West.
While the renewed credit crisis that began in mid-September following the bankruptcy of Lehman Brothers will likely impact sales in the coming months, distressed sales, which significantly boost affordability, should prevent sales from dropping off sharply and allow sales to stabilize near the 5.0 million mark for the fourth quarter.
A Flight to quality returned last week, as stock markets around the world plunged, making Treasury's a safer alternative. Treasury prices jumped as demand increased, pushing yields lower across all maturities.
Federal Reserve policymakers this week announced a 50 basis points cut in the federal funds rate on 10/31. The rate now sits at 1%, a five-year low. The federal funds rate is the interest rate on money loaned between banks. Since banks must keep a certain percentage of their money in reserve, they must borrow money overnight from one another to make sure they have enough set aside. By lowering the funds rate, the Fed makes it cheaper for banks to borrow, which frees up more money that can be loaned to consumers.
The Conference Board index of leading indicators - a gauge of future economic activity - rose by 0.3% in September the first increase since April. This indicator is designed to forecast turning points in the business cycle based on 10 economic components. Six of the 10 components increased during the month. These included an increase in money supply and improvement in consumer expectations. Four negative contributors included a sharp decline in stock prices and residential permits and higher unemployment claims.
This Week:
- Monday - September new home sales
- Tuesday - The Conference Board's Survey of Consumer Confidence for October
- Wednesday - September durable goods orders and the conclusion of the two-day Federal Market Committee Meeting
- Thursday - the advance estimate for gross domestic product for the third quarter
- Friday - September personal income and personal consumption expenditures, the final estimate of the University of Michigan's Survey of Consumer Sentiment, and the third quarter Employment Cost Index.
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