The National Association of Realtors reports that existing home sales continued to rise in October -- by 10.1%. That's on top of an 8.9% increase in September. It's hard to characterize this as bad news, but I wouldn't get too excited. The housing market may have trouble sustaining this trend.

First, let's look at what existing home sales have looked like since September 2008:

existing home sales 2009-10 NAR.PNG


As you can see, they've risen significantly. At 6.1 million annualized for October, they're beginning to approach the 2006 level of 6.5 million. And that was back when people scoffed at the idea of a housing bubble.

So what can we make of all of this? Well, the obvious answer is that the first-time home buyer credit had a huge effect. In October, in particular, people were still worried that it might end in November and not be renewed. That likely brought even more future demand into the month than in September to take advantage of the incentive.

But now that it's been extended -- and a new broader credit offered to almost all homeowners -- will this trend continue? While I find that a little difficult to believe, given a finite pool of potential buyers, I think that the broader credit for current homeowners to buy might also create some demand over the next several months.

The problem, of course, is that all this home buying must work in opposition to 10.2% unemployment. And that could be tough with a labor market that isn't likely to improve much in the early part of 2010. But with foreclosures continuing to break new records, there will be plenty of deals to be had.

Inventories are also moving in the right direction. The NAR says:

Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.



But if the broadened credit for current homeowners drives sales through April, then that won't help inventories much -- every current homeowner buying a house will have no net effect on inventory, since their old home will then hit the market.

Several different factors are all pulling the market in different directions. So it's a little hard to know exactly how it will all turn out. But I wouldn't be surprised to see home sales decline a bit during winter, but increase again in the months prior to the new credit's expiration at the end of April 2010. Inventories, however, might begin to increase again though, as long as foreclosures remain very high.

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