WASHINGTON - Sales of existing homes climbed to the highest level in 14 years in October, according to a report released yesterday that analysts said provides fresh evidence the housing market is showing renewed vigor.
Sales grew 3.6% in October to an annual rate of 4.08 million units, following a revised gain of 3.4% in September that was well above the 2.6% increase originally reported, the National Association of Realtors said. Sales have advanced in six out of the last seven months data from the group show.
The October gain, which was a turnabout from expectations that sales might decline slightly, lifted existing-home sales to the highest level since May 1979, the trade group said
"We are now seeing sales stronger than in all of the 1980s," said Dan Seto, an economist with Nikko Securities Company International. It's quite encouraging. I don't expect a retreat in the housing market anytime soon."
This is one of several recent reports that economists say shows sustainable strength in the housing market. New single-family home sales in September surged more than 20% to the highest level in over six years, and housing starts hit a three-year high in October. the government reported earlier this month.
Economists expect home sales to remain brisk at least through this quarter and the first few months of next year. This, they say, increases the chance of stronger than expected growth in the first quarter of next year because new home owners tend to buy more durable goods such as appliances. And home sales are viewed as an important measure of consumer confidence.
Growth is expected to be relatively strong this quarter, due in part to strong consumer spending, such as for autos, and the lingering effects of the Midwest flood. Many economists have taken the view that growth will drop off notably in the first quarter of next year, thanks in part to higher taxes.
"The burden of proof has now been shifted to those who say the economy automatically has to stall in the first quarter," said Russell Sheldon, senior economist of Mellon Bank in Pittsburgh.
Mark Obrinsky, senior economist of the Federal National Mortgage Association, agreed. "We don't think strong growth in the fourth quarter will be a bubble that entirely disappears in the first quarter of next year," he said.
Obrinsky forecast that existing-home sales can sustain a four million-plus pace on average for the next two quarters. "The housing market is certainly performing better than most sectors of the economy," he said.
However, Sheldon said he expects that existing-home sales will decline from October's stratospheric level in the coming months but nonetheless stay strong. Sales will hover around a 3.25 million rate in the near term, he predicted. "The report looked really good, but it won't last," he said.
On Thursday, the Commerce Department will report new single-family home sales in October. Analysts generally expect a decline after the huge pin in September. Nonetheless, they expect sales to remain strong and gain ground well into next year.
Obrinsky forecast that single-family home sales will drop to a 690,000 rate in October from the 762,000 rate in September. Excluding the September figure, that would be the highest level for the year, according to government data.
Mortgage rates stayed relatively low through most of October then crept upward near the end of the month.
Some economists attributed the surge in homes sales to fears that rates would continue to climb. Others attributed the wave of purchases to a strengthening economy and continued job growth.
"The favorable affordability conditions are still in place," Seto said, referring to interest rates in conjunction with home prices.
In fact, existing-home prices fell in most areas of the country in October, the realtors group reported. The average price in October was $132,700, down slightly from $133,700 in September.
Seto said job growth next year will be a primary factor in whether home sales can sustain or surpass current levels.