Existing home sales for October pick up to an unexpected one-year high

The US housing market got a few pieces of good news this week. The latest? The pace of Americans buying pre-owned homes hit a one-year high last month.

Existing home sales picked up 1.5 percent to a 5.26 million annualized pace in October, according to data released Thursday by the National Association of Realtors (NAR). Analysts had been expecting sales to fall to a 5.16 million pace, from a revised 5.18 million in September. It was the fastest rate for existing home sales since September 2013, representing a 2.5 percent gain from October of last year.

“The October result was above what was suggested by the September pending existing home sales, which had indicated little change in actual sales relative to their September pace,” Joshua Shapiro, an economist with MFR, Inc., writes via e-mailed analysis.

Buyers “continue to be encouraged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth,” NAR's chief economist says in the organization’s release of the October data. “Furthermore, the job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases.” 

The report comes on the heels of two hopeful signs for the housing market earlier this week. Home-builder confidence has seen a healthy increase this month, thanks to continued low interest rates and a boost in buyer traffic, according to data released Tuesday by the National Association of Home Builders (NAHB).  And housing starts, a strong indicator of future home purchases, fell 2.8 percent in October from September. However, the dip was due to a plunge in the volatile multifamily home sector. Starts on single family homes, which make up two thirds of the overall market, increased 4.2 percent to reach their highest pace since  November of last year.

“Single-family building permits are the figures to watch here, and they did not disappoint in October,” IHS Global Insight economists Patrick Newport and Stephanie Karol wrote Wednesday in an e-mailed report. “However, only one region of the country (the South) seems to be digging itself out of the rut that all regions have been stuck in since the end of 2012. All other regions continue to move sideways – a worrying trend.”

There were concerns on the existing sales front as well. The percentage of first-time buyers went unchanged at 29 percent, while the share of all-cash buyers and investors increased to 27 percent and 5 percent, respectively. A strong market has a small share of such buyers and a more robust market for families and first-time buyers.

Still, analysts are hopeful that sales gains will continue in the near term. “Our virtuous cycle spins on for single-family homes,” Mr. Newport and Ms. Karol wrote in a Thursday report. “Yearly price growth looks stable and positive. Current market conditions are unlocking a strong demand for existing single-family homes; the affordability index rose 4.5 percent month-on-month in September (i.e. homes were more affordable), granting buyers the additional purchasing power they need to keep bidding prices up…. Mortgage rates have fallen since the end of September, which has helped to spur an uptick in purchase applications over the past three weeks. This should translate into increased sales over the course of the next two months, since home sales are recorded when the transaction has finalized. We therefore expect that sales rates should continue to advance as the year draws to a close.”