Housing report card: Busy, but not significant

Existing home sales take a big jump, but that's not the indicator we should be watching

Published October 23, 2009 3:32PM (EDT)

As if to preemptively puncture the enthusiasm anyone might feel about Friday's announcement from the National Association of Realtors that existing home sales in September rose a healthy 9.4 percent over August, Calculated Risk warned us on Tuesday not to pay too much attention to that economic indicator when seeking signs of economic recovery.

Those looking at existing home sales for economic guidance are confusing activity with accomplishment.

Never mind that sales activity is at is highest annual rate since July 2007. Not only is much of the momentum fueled by a huge first-time homebuyer tax credit of $8000 that is set to expire Dec. 1, but, according to Calculated Risk, existing home sales are not considered a leading economic indicator because:

The sale of an existing home adds a little to the economy (some commissions and fees), and sometimes some added spending on improvements. Only the improvements add to the housing stock (not commissions). And right now marginal buyers have very little to spend on improvements

The most important data point in today's news, per the Wall Street Journal: "the median price for an existing home last month was $174,900, which is 8.5 percent below $191,200 in September 2008."

When housing starts and new home sales start significantly ramping up, and prices stop falling, then we can start talking about recovery.


By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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