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Low home prices lure more buyers

As foreclosures crowd the market, sales of existing units rise 5.5% in September to the highest level in a year.

October 25, 2008|Dina ElBoghdady | ElBoghdady writes for the Washington Post.

WASHINGTON — Sales of existing homes in the U.S. rose in September as buyers in some of the hardest-hit real estate markets snapped up foreclosures at bargain prices, an industry trade group reported Friday.

Sales of single-family houses, town houses, condominiums and cooperatives rose 5.5% in September from the previous month to a seasonally adjusted annual rate of 5.18 million units, the highest level in a year, according to the National Assn. of Realtors. They were up 1.4% from the same time a year before -- the first time since November 2005 that home sales have been above year-earlier levels.

"The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island," Lawrence Yun, the group's chief economist, said in a statement.

But turmoil in the world's financial markets this month may disrupt the momentum in the housing markets, as signaled by the grim performance of global markets Friday morning. Many economists are predicting recession.

Already, interest rates have climbed since last month. Price declines continue to put pressure on homeowners who want to refinance or sell.

Still, the low home prices seemed to lure buyers into the market last month. The median price of existing homes in September was $191,600, meaning half the homes sold for more and half for less. That's down 9% from a year earlier, when the median was $210,500.

Foreclosures are dragging down prices. "Distressed sales are currently 35% to 40% of transactions," Yun said.

Low prices helped whittle down the bloated supply of homes for sale, which fell 1.6% to 4.27 million at the end of September. If sales continue at the same pace, that would leave a 9.9-month supply of homes, still well above the five- to six-month supply found in a healthy market.

The drop in inventory, however, is the second monthly decline in a row since inventories peaked in July.

The biggest sales gains occurred in markets with frothy prices during the housing boom. The sharpest gain was in the West, where sales jumped 16.8% to an annual rate of 1.25 million. The median price in the West was $253,600, down 18.5% from a year earlier.

In the South, sales rose 2.2%. In the Midwest, sales increased 4.4%. Prices were down in both regions, by 4.1% and 7.9%, respectively.

The Northeast was the only region to see a drop in sales volume, with transactions down 1.2% and prices down 5.4%.

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