existing home sales surge

Existing-home sales surged 10.1% month-over-month (m/m) to an annual rate of 6.10 million units in October. That was significantly better than expected as economists had only forecast a 2.3% gain to 5.70 million. At the same time, last month's data was revised lower, with September data now showing an 8.8% increase to 5.54 million units. Even the National Association of Realtors was surprised at the size of the gain with NAR's chief economist reporting "Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November." Similarly, the NAR warned "With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."

The report showed that strength was broad-based, with single-family home sales up 9.7% and multi-family sales rising 13.2%. The data also showed every region save one posting a double-digit gain in sales. The 1.6% increase in the West was the lone exception. Elsewhere in the report, distressed properties constituted 30% of sales nationwide during October, which weighed down the median existing-home price to $173,100 - 7.1% lower year-over-year (y/y). That decline in prices has driven affordability levels to all-time highs, with data back to the 1970s. The price-to-income ratio has also fallen below its historic trend line, which the NAR said will contribute to prices bottoming and even rising next year. Even inventory levels are beginning to look bullish. "In fact, low-end inventory has become very tight in many areas and in some cases buyers are becoming more aggressive," the NAR reported. Total housing inventory now represents a 7.0 month supply, the lowest level in over two-and-a-half years.

The stabilization of the housing market is one factor that could get the US consumer back on its feet sooner than expected. As Schwab's Director of Sector and Market Analysis, Brad Sorensen, CFA, points out in his Schwab Sector Views: Scaling Back, there are multiple reasons to be concerned about the health of the American consumer, but there are also reasons to be optimistic. Among the negative factors are an unemployment rate which is likely to move higher and the need for consumers to repair their personal balance sheets. Tighter credit conditions will also likely reduce consumers' ability to spend. However, Americans have a propensity to consume and have defied predictions of their shopping demise many times before. In addition, at the end of a year when American consumers have shown restraint in spending, it is not too difficult to imagine some pent-up demand being released during this time of the year-resulting in the potential for upside surprises. In the end, after taking into account all of these factors as well as the strong rally in cyclical areas of the market since March and resulting valuation of stocks in the sector, Brad feels a Marketperform rating of consumer stocks is appropriate. Read more at www.schwab.com/marketinsight.

[via Schwab Alerts]