The National Association of Realtors reported today that existing home sales jumped in September by 9.4% to an annualized rate of 5,570,000, seasonally adjusted. The rest of news regarding September's home sales was also largely positive, with inventory decreasing and prices decreasing less than usual. Does this indicate that we've finally reached the housing bottom? Maybe, but I'm not convinced a new housing sales boom will endure.

This newly updated picture of existing home sales certainly seems to show that we're trending in the right direction, and that the worst is behind us (based on NAR data):

Existing Home Sales 2009-09.PNG


Of course, September looks great over the prior year, but it's still a relatively low level. Annual sales in 2006 were 6.5 million -- 17% higher than last month.

Can we only go up from here? Well, it depends what's been driving this sales growth and how foreclosures trend. Neither factor may have a happy fate in the near-term.

Let's start with the reason for the upwards trend. The most naïve immediate explanation is that consumers are feeling better about the real estate market, so buying more homes. That's probably part of it. But I'd suggest it has a lot more to do with the prospect that the first-time home buyers credit may be allowed to expire at the end of November. Right now, its fate is in jeopardy, as Congress decides whether it will renew the credit. That likely created an unnaturally high number of first-time buyers rushing to get their purchase in during September.

If that is driving sales, and I don't see how it couldn't be, then how Congress acts will determine what sales do in the coming months. Yet, sales will likely decrease before long -- no matter what Congress does. As soon as it announces it intends to extend the credit into 2010, then sales will likely drop, as first-time buyers won't have to rush to get their purchase in. If they say they aren't extending the credit, then high sales will continue through November, and then plummet in December. Of course, sales will drop further under the scenario where the credit isn't renewed, but I'd imagine October or November will mark a peak for home sales either way.

Then there are foreclosures. They're continuing, now being driven by the recession more than wacky resetting mortgage products. I've also noted a potential shadow foreclosure inventory problem, where even once delinquencies decline, evictions may continue as banks slowly release more foreclosed properties into the market.

None of this bodes well for home sales after November. Following the October/November peak, we'll likely see numbers return to the sub-5 million annualized range. Renewing the first-time home buyer credit may help. But then, there are only so many first-time buyers out there who can afford a home, so that population may get exhausted before too long.