Implications: Existing home sales handily beat consensus expectations in October, but remained right near the middle of the 4.6 - 5.1 million annual rate range they have been in since March. The National Association of Realtors said cancelled contracts to buy existing homes increased to 33% in October. This is substantially higher than the 18% pace of September, which was already near twice normal levels. These figures suggest that, despite low mortgage rates, homebuyers face very tight credit conditions. Tight credit conditions would also explain why all-cash transactions accounted for 29% of sales in October, versus a traditional share of about 10%. If you have cash, prices are low relative to fundamentals (such as rents and replacement costs), and so it's a great time to buy. But it's not nearly as easy to take advantage of low prices if you have to ask a lender for a loan. A large portion of sales in October came from distressed properties (such as foreclosures and short sales). While some may see this as a negative, this is exactly what has to happen for inventories to continue to be worked off and for the housing market to recover. Slowly but surely, the inventory of existing homes continues to fall, now down 13.8% versus a year ago and the lowest level for any October since 2005. But with credit conditions likely to remain tight for some time, we don't expect a huge increase in home sales any time soon, even with historically low mortgage rates.
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