HOUSING MARKET

Sales gains in October lift hopes

WASHINGTON (AP) — First-time buyers seized on a tax credit, combined with low mortgage rates and falling prices, to boost home sales in October to their highest level in 21‚Ñ2 years.

Home sales are now nearly 37 percent above their bottom in January, though still 16 percent below their peak in 2005. At the current sales pace, there’s a modest seven-month supply for sale. Bidding wars are occurring in some areas.

Analysts, though, said the gains mainly reflected the homebuyer tax credit, which had been due to expire Nov. 30. Earlier this month, Congress voted to extend it until spring — and expanded it to more buyers.

The report Monday from the National Association of Realtors pleased investors on Wall Street. Analysts said the homebuyer tax credit will help sustain the housing market next year.

Yet the overall economy is likely to benefit only slightly from higher home sales.

Too many factors are weighing on the fledgling recovery. Home construction is weak. Foreclosures are rising. Job creation is slow. And consumers remain reluctant to spend.

Though housing is contributing to growth, other parts of the economy must turn around if the recovery is to gain strength, analysts said.

Residential spending has gone from being a drag on the overall economy to a positive force, but “I wouldn’t want to bet the house on housing, really, in terms of the strength of the U.S. economy going forward,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

The Realtors group said resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from a downwardly revised pace of 5.54 million in September. It was the biggest monthly increase in a decade, and far above the 5.65 million pace economists expected, according to Thomson Reuters.

“People who are looking, they are serious,” said Harrison Tulloss, an agent with ZipRealty Inc. in the Raleigh-Durham area of North Carolina.

Investors seized on the better-than-expected home sales, along with a falling dollar, to snap up stocks. The Dow Jones industrial average and other stock indexes rose more than 1 percent in midafternoon trading.

The strength in home sales helped ease the market’s pessimism that followed weaker data on housing starts, employment and consumer confidence over the past few weeks. The falling dollar contributed to the rally, on the expectation that a low dollar will keep interest rates low. Low rates make it cheaper for companies to borrow and investors to finance purchases of stocks and commodities.

Stocks also were helped by momentum buying, with investors buying stocks simply because the market is rising and no one wants to miss out on the rally.

The recovery in the housing market is being driven by reduced prices, combined with federal programs to lower mortgage rates and bring more buyers into the market. The median sales price was $173,100. That’s down 7 percent from a year earlier and off roughly 2 percent from September.

Many experts, though, predict prices will hit a new low next spring, perhaps falling another 5 percent to 10 percent, as more foreclosures get pushed onto the market. The government has tried to counter that trend by offering a tax incentive for first-time buyers and by keeping mortgage rates around 5 percent since the spring.

“The only reason we’re seeing good numbers is because of government policies that are propping the market up,” said Patrick Newport, an economist with IHS Global Insight. “Housing is still fundamentally weak.”

The biggest contribution the housing industry makes to economic growth is from home building. Commissions and fees generated from home sales also help, but far less than construction does.

The tax credit of up to $8,000 for first-time owners was originally set to expire Nov. 30. But Congress renewed it earlier this month and broadened its reach. People who have owned their current homes for at least five years can now claim a tax credit of up to $6,500 for a home purchase. To qualify, buyers must sign a purchase agreement by April 30.

In Ohio, the Ohio Association of Realtors says 10,090 new and existing homes sold in the state during October, up 3.6 percent from the number that changed hands in September.

The trade group says the statewide average sale price last month was nearly $132,600, down 1 percent from September but 0.7 percent higher than the average of about $131,700 paid in October 2008.