Home sales: Bounce off the lows


Existing home sales bounced higher in September Existing home sales increased 10% to 4.530 million in September, above market expectations. While the monthly gain is encouraging, we must put this into perspective. Sales collapsed over June and July, reaching a record low of 3.84 million in July so the pickup in August and September should be seen as a partial bounce-back. Sales are still declining on a six-month moving average, highlighting the low level of activity. The slowdown in the sales pace from earlier this year is not only a function of the removal of the homebuyer tax credit, but also a decline in confidence and lack of job creation.

Months supply uncomfortably high

It takes 10.7 months to clear the inventory at the current sales pace. This is an improvement from the 12.5 months in July but is still considerably above the average of 8.3 months in the first half of the year. Moreover, it is about double the normal amount of 5-6 months. The wide imbalance between housing demand and supply will continue to exert downward pressure on home prices and new construction.

Bumpy ride ahead

The recent volatility in home sales should persist. The current review of the foreclosure process is likely to delay the flow of distressed properties to the market. In addition, demand for distressed properties may remain weak in the near-term as buyers potentially doubt the legality of foreclosures. As such, home sales may decline notably in Q4 before bouncing again early next year.



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