Is This Bad News for the Housing Recovery?

While the housing market has been a relatively strong point this year, data released Thursday morning by the U.S. Commerce Department indicated that this trend may be over, or at least on pause.

Overall, new single-family home sales fell 0.3 percent in the month of October, to a 368,000-unit annual rate, and September’s sales pace was downwardly revised to 369,000 from 389,000. Economists had projected sales of 390,000 based on consumer demand and lean inventories. The difference between reported sales and predicted sales was, in part, caused by Hurricane Sandy; home sales in the Northeast dropped 32.3 percent.

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In conjunction with falling new home sales, the supply of new homes rose from 4.7 months to 4.8 months over the month, and the median sale price rose 5.7 percent year-over-year.

While this month’s numbers revealed a slight decline in sales, the report was not an indication that the housing recovery has come to a halt. Rather, the results suggest that the recovery will be slow.

“The mix of sales regionally suggests that the most depressed areas are seeing support, which makes sense since prices fell the most in those areas,” wrote Mizuho Securities chief analyst Steven Ricchiuto in a note seen by MarketWatch. “This report fits nicely with our view that housing has bottomed but is not ready to provide the engine to growth that the equity bulls want to see.”

Although recovery has been slow, sales are up 17.2 percent from October 2011, and BNP Paribas economist Yelena Shulyatyev has predicted that sales will continue their upward rise.

Tight credit standards have also been cited as a contributing factor to low sales. MarketWatch reported that “while persistently low mortgage rates are attracting some buyers, consumers still face tight credit standards, and officials say factors such as tight lending terms will likely block a powerful housing recovery.”

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