Existing home sales rise but Fed easing still seen

Sales of previously owned homes rose in September, but remained at subdued levels that did little to undermine the case for additional monetary stimulus next week from the Federal Reserve.

Existing home sales increased for a second straight month, rising 10 percent from August to an annual rate of 4.53 million units, the National Association of Realtors said on Monday.

Although the increase far exceeded economists' expectations for a 4 percent rise to a 4.30 million-unit pace, they remained below the 5 million-unit pace normally associated with a healthy market.

"The September data shows that the post-tax-credit bust in home sales has come to an end and we are now on a gradual recovery path," said Zach Pandl, a U.S. economist at Nomura Securities International in New York.

U.S. stocks extended gains on the report, while Treasury debt prices were steady at higher levels. The U.S. dollar trimmed losses versus the euro.

The report came ahead of the Federal Reserve's meeting next week at which policymakers are expected to decide to inject more money into the economy through bond purchases, to drive borrowing costs down further and stimulate demand.

The Fed cut overnight interest rates to near zero in December 2008 and has already bought about $1.7 trillion worth of Treasury and mortgage-related debt.

The housing market is showing signs of having bottomed after hefty declines in the aftermath of the end of a popular tax credit for home buyers. Activity, however, remains very subdued and recovery will be very slow given a 9.6 percent unemployment rate.

Last month, the inventory of previously owned homes for sale fell 1.9 percent to 4.04 million units from August, representing a supply of 10.7 months.

The national median home price fell 2.4 percent from September last year to $171,700.

But an investigation into the processing of foreclosures by some banks is casting a cloud over the housing market, which was the main catalyst of the 2007-09 recession.

There are concerns that the investigation could slow the housing market correction as banks hold back foreclosures.

"The current foreclosure (situation) is a potential negative. Less foreclosures mean the supply of these homes for sale will go down and people will be more reluctant to buy them," said Jim O'Sullivan, chief economist at MF Global in New York.

According to the NAR foreclosed properties constitute about 20 percent of homes on the market. The Realtors group cautioned against any government mandated moratorium.

Last month foreclosed properties accounted for 23 percent of sales while short sales made up 12 percent.

[Source: Reuters, Washington, 25Oct10]

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