Sales of existing single-family homes rose to unusually high levels last month, demonstrating the underlying strength of the housing market, according to the National Association of REALTORS.

Existing-home sales increased 6.1 percent in October to a seasonally adjusted annual rate of 5.77 million units from an upwardly revised level of 5.44 million units in September. Last month's sales activity was 9.5 percent above the 5.27-million unit pace in October 2001 and was tied for the third-highest pace on record.

David Lereah, NAR's chief economist, said a couple factors are at play. "Obviously, historical lows in mortgage interest rates in recent months are a big stimulus," he said. "At the same time, the inventory of homes on the market, which was historically lean during the first half of the year and limited housing choices, improved in August and September. This means there were greater opportunities for buyers to find homes that meet their needs."

"Since it takes some time between purchase offers and transaction closings, what we're seeing now is the result of a better combination of conditions that began in August and improved through September," Lereah said.

Housing inventory levels at the end of October slipped 2.6 percent from September to a total of 2.23 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from a 5.1-month supply in both August and September. During the first half of 2002, inventories averaged a 4.6-month supply; a 6.0-month supply is considered to be a generally balanced market between buyers and sellers.

NAR President Cathy Whatley said the interest-rate picture remains bright. "In recent weeks, the 30-year fixed-rate mortgage has moved lower, briefly dipping below 6.0 percent. Right now there's very little pressure on interest rates to move much higher, so we'll have favorable affordability conditions for some time to come," she said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.11 percent in October, up marginally from a record monthly low of 6.09 percent in September; it was 6.62 percent in October 2001. Freddie Mac started tracking mortgage interest rates in 1971.

The national median existing-home price was $159,600 in October, up 9.8 percent from October 2001 when the median price was $145,400. This is the largest price gain since July 1987 when the median price rose 10.5 percent above a year earlier. The median is the midpoint, which is a typical market price where half of the homes sold for more and half sold for less.

Published: November 26, 2002

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