home sales for october increase on low mortgage rates
Via Morgan Stanley Research

October existing home sales and November homebuilder sentiment marked two bright spots in an otherwise gloomy run of recent data. Existing home sales rose 2.1% (to 4790k from 4690k previously).

The National Association of Realtors noted that Hurricane Sandy affected October sales, but that delayed sales would have a bigger impact in November and December. Single?family homes rose 1.9%, while condos rose 3.6%. Sales are now up 10.9% from year?ago
levels, and the three?month moving average is the highest since home buyer tax credit boosted sales in 2009. The inventory of homes for sale is down ?22% from year?ago levels and currently stands at the lowest level since December 2002.

A lean inventory?to?sales ratio (months’ supply at the current selling rate was just 5.4 months) is fostering continued home price
appreciation, as median prices are now up 11.1% in year?on?year terms. The price trend is helped by near record high affordability,
helped by extremely low financing rates.

The number of homes listed for sale fell 1.4% to 2.14 million, which along with the up-tick in the sales pace lowered months’ supply to
5.4 months from 5.6, a six-year low. In normal market conditions, about 6 months of supply would be consistent with a balanced
market. On top of the 2.14 million homes listed for sale there remains a substantial shadow inventory, but this has started to moderate.
Housing analysts estimate that shadow inventories have fallen by a third to 5.65 million from a peak of 8.79 million in early 2010.

Average selling prices have stalled out in recent months, but the median price was still up 11.1% year/year in October to $178,600
after a strong rebound in the first half of the year. A slower pace of distressed sales has supported the recovery in prices that
housing analysts expect to continue going forward. Distressed sales made up 24% of existing home sales in October, steady versus
September but down from 28% a year ago. Also important has been a shift within distressed sales from foreclosures to short sales,
which typically have much smaller price concessions. Foreclosures made up 12% of sales in October and short sales 12%, compared to
17% and 11% a year ago.

Housing affordability is at historically unprecedented levels. Principal and interest payments on a median-priced existing home after a
20% down payment with the recent average 3.34% 30-year mortgage rate would be only $629 a month, unusually low relative to rising average rents. Difficulty obtaining mortgages for any borrowers with less than pristine credit remains a substantial headwind to a stronger recovery in home sales, however.

Analysts at RBS were concerned that lost selling days toward the end of the month could nudge the number lower, but this does not appear to have been the case, at least to a large degree, thanks to solid gains in other regions. Geographically, sales
rose in the Midwest (1.8%), South (2.1%) and West (4.4%), and sales fell in the Northeast (?1.7%).


November homebuilder sentiment surged five points to a level of 46, which is the highest since May 2006. Among the three sub?components, present sales rose the most sharply (49 vs. 41 previously), but expected sales in the next 6 months also increased (53 vs. 51). Prospective buyer traffic was unchanged at 35. Geographically, sentiment rose in the Midwest (51 vs. 40), South (49 vs. 42) and West (49 vs. 48), but fell in the Northeast (31 vs. 32).