Existing home sales surge

Last month saw a surge in existing home sales. Specifically, they were up 9.4% vs. last year’s same time period. This sharply contrasts will August’s 2.9% fall. So why the sudden surge?

First, and most importantly home prices continue to fall. We have a term for that in economics: supply and demand, baby. Low demand with fixed supply = falling prices. This is born out by the statistics. Median home prices were 8.5% lower than a year ago. Second, the $8,000 tax credit for first-time home buyers was expiring. Unfortunately, it is difficult to parse out the demand effects of the expiring tax-credit from the data. Thus, it is difficult to get a clean reading on where the housing market really stands relative to economic recovery.

The Good News: For sales to be up 9.4% means that not only are interest rates low on paper, but that actual lending is taking place by banks. This is a hugely positive sign for the economy. Credit is necessary for individuals and businesses alike. For individuals credit is appropriate for three purchases: homes, cars and education. But for businesses it is even more essential. Credit is one method for how great new business innovations and products are financed. The development for these is essential for the long-term health of the economy. For the past year credit has been tighter than the backside of a person on an all pizza diet (hah!). It is finally easing. So regardless of whether the housing market is baaaack, credit is moving.

Jason