New York - Sales of existing U.S. homes likely rose for second consecutive month in October, reaching their highest level since July 2007, according to a Reuters poll, as buyers scrambled to take advantage of greater affordability and a first-time home buyer tax credit.
The survey of 29 economists predicted sales of previously owned homes climbed to a seasonally adjusted annual rate of 5.70 million, the fastest pace since 5.73 million units were sold in July 2007 and up from 5.57 million units in September.
Forecasts, however, ranged widely, from as low as a seasonally adjusted annual rate of 5.26 million to as high as 6.00 million units.
Existing home sales have been on an upward trend for most of this year and an increase in October would mark the sixth gain in seven months. Home sales typically pick up in the spring as warmer weather boosts activity, but the momentum continued into most of the summer and fall.
Consumers have come out in droves to take advantage of the federal government's $8,000 first-time home buyer tax credit -- part of the stimulus bill -- which was originally set to end November 30.
The Obama administration recently extended the $8,000 first-time home buyer tax credit, added a $6,500 credit for home owners buying a new residence and increased income limits. Eligible borrowers must sign contracts by April 30 and close by June 30.
The lowest mortgage rates in decades and high affordability have also helped the housing market find some footing after a three-year slump. Home price declines have been moderating in many regions of the country and in some areas they have risen.
Improvement in the housing market bodes well for the U.S. economy, as it points to better demand in the sector where the first signs of the recession took root. But with distressed properties making up a high proportion of sales, there is widespread uncertainty about the sector's long-term outlook.
To be sure, there is still a huge supply of unsold homes on the market and millions of more foreclosures are in the pipeline, which should continue to pressure prices.
The economic outlook is also crucial for housing demand and many potential buyers are staying sidelined due to unemployment or fear of losing their jobs. The U.S. Labor Department said the unemployment rate reached a 26-1/2-year high of 10.2 percent in October. Access to credit also remains tight.
While existing home sales are predicted to rise in October, declines are expected in the months following. Recent data indicates a sector that is still on shaky ground. The Commerce Department said new U.S. housing starts in October unexpectedly fell to the lowest level in six months, dropping 10.6 percent.
Existing home sales tally the number of previously constructed homes for which a sale closed during the month.
The National Association of Realtors will release U.S. existing home sales data on Monday at 10 a.m. (1500 GMT).
Following is a selection of forecasts and comments from economists:
CELIA CHEN, SENIOR DIRECTOR OF HOUSING ECONOMICS, MOODY'S
ECONOMY.COM, WEST CHESTER, PENNSYLVANIA:
Forecast: 5.85 million
The pending home sales index remains very strong. The existing home sales numbers probably still reflect buyers who were trying to qualify for the tax credit before it was to expire at the end of November. Foreclosure sales are also helping existing home sales. New home sales will retreat. They lead existing sales. October will reflect the fact that it was getting too late to qualify for the ARRA tax credit. Additionally, foreclosure sales are hurting new home sales.
PATRICK NEWPORT, U.S. ECONOMIST, IHS GLOBAL INSIGHT,
Forecast: 5.85 million units
Our forecast is largely based on what we have seen in the pending home sale index, which points to strong sales in October and November. I would not be surprised to see a drop in December. The first-time home buyer tax credit should have much less of an impact going forward because most people who could take advantage of it probably already did, so it has exhausted most of the pool of home buyers. We expect 2010 overall to be a weak year for selling homes and we expect quarterly declines. What the market needs is for the economy to start growing again and we need job growth.
ADAM YORK, ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE,
Forecast: 5.6 million units
This will probably be the last month we see the impact of the first installment of the first-time home buyer tax credit. The original expiration at the end of November has not showed up in existing home sales data yet and we will probably see it the November data and maybe even December. We have seen very choppy housing data across the board and it will be very difficult to see the underlying trends because of the first-time home buyer tax credit extension and the expansion to include existing home owners.
MICHELLE MEYER, ECONOMIST, BARCLAYS CAPITAL, NEW YORK:
Forecast: 5.70 million units
Existing home sales have already returned to the highest level since summer 2007, showing a rapid recovery in demand. We attribute a good portion of this increase to the first-time home buyer tax credit -- in our view, sales would have risen a more modest 10 percent from the beginning of the year absent the tax credit versus the reported gain of 24 percent. The home buyer tax credit should continue to boost sales in October as first-time home buyers, under the impression that the credit expires at the end of November, rushed to close on their purchase. We expect a dip in home sales over the rest of the year, followed by a rebound early next year, given the extension of the tax credit.
(Additional reporting by Lucia Mutikani; Editing by Dan Grebler)