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U.S. existing home sales in October fell 2.2% month to month, according to the National Association of Realtors (NAR). This was not unexpected given the problems with respect to the processing of mortgage foreclosures. While weakness in residential real estate markets continues, the nation’s GDP growth refuses to be held back. Third quarter GDP has just been revised from +2.0% to +2.5%. The worries about a double-dip recession have been alleviated.

The resale segment of residential real estate is much larger than the new homes category. When speaking of construction activity levels, it’s usually new housing starts that are the focus of attention. However, resales are an important leading indicator. For example, in the move-up market, an existing home is often sold prior to taking on the commitment to buy new. Fixing up a resale prior to selling is also crucially important to contractors that specialize in renovation work.

There is currently a 50-state inquiry examining the mortgage foreclosure practices of the nations’ biggest banks. It has come to light that, perhaps through lax hiring practices and/or inadequate training, some foreclosures may have been rushed through too quickly without proper care.

A moratorium is in place in several states while the inquiry is underway, creating uncertainty on several fronts. One solution may be to set aside funds to compensate individuals if their homes were improperly seized. Almost assuredly there will be voluminous and lengthy litigation.

The uncertainty for developers concerns the level of available supply in their respective local market areas. When the moratorium is lifted in a couple of months, there are likely to be many more homes thrown on the market to depress prices and add to the stock of unsold inventory.

The annualized level of existing home sales in October was 4.43 million units. This was 26% below the same month a year ago. However, October 2009 was jacked up by the first-time homebuyer tax credit that was set to soon expire. Then it was extended through April 2010.

The year-over-year comparison in November will also be strained. Resales were at their most recent maximum in November 2009, topping out at 6.5 million units seasonally adjusted and annualized. By way of comparison, the most recent low was in July 2010 at 4.0 million units.  

The NAR is forecasting sales will gradually improve in the months ahead. They are expected to climb back above 5.0 million units by the spring of next year. Improving employment (+151,000 jobs in October) and strong affordability (slashed prices and low rates) will be helpful. Affordability is being particularly aided by record-low interest rates. The nation-wide average charge for a 30-year conventional fixed-rate mortgage is only 4.23%, according to Freddie Mac.

Distressed homes accounted for 34% of sales in October, not significantly different than the month before, but higher than in October of 2009, when the proportion was 30%.

The credit crisis of early 2009 has created an environment that is making a home purchase much harder, according to NAR officials. Some sales are being put on hold when appraised values, requested by banks, are coming in lower than the price negotiated between buyer and seller.

Furthermore, credit has been tightened to the point where some potential borrowers are being unfairly shut out. According to the NAR press release, these are not buyers whose finances are only marginally viable. These are buyers who easily meet historically acceptable criteria.

The stockpile of unsold existing homes at the current sales rate remains elevated at 10.5 months.

Despite ongoing weakness in residential markets, there is increasing evidence that the U.S. economy is making progress in regaining its health. The third-quarter gross domestic product (GDP) growth rate has been revised from +2.0% to +2.5% by the Bureau of Economic Analysis.

There were three areas of significant re-adjustment. The growth in personal consumption expenditures was raised from 2.6% to 2.8%. Government expenditures and investment went from +3.4% to +4.0%. Finally, the foreign trade picture improved with goods and services exports moving to +6.3% from +5.0% and goods and services imports from +17.4% to +16.8%.

There was strong, positive news for the corporate sector. After-tax profits were 28.2% higher in the third quarter of this year than in the same quarter of last year.

The strong profit performance promotes business confidence. It will also permit more re-hiring as recovery proceeds. There is another important side effect. It justifies higher stock prices. In turn, this helps individual and family finances through pension and mutual fund holdings.

In Canada, October national resale housing activity climbed for the third month in a row according to the Canadian Real Estate Association (CREA). After setting records in late 2009, Canadian resales experienced a downturn in the late spring and early summer of this year.

The current level of sales activity is 13.3% higher than in July of this year, which was the low point in 2010. According to CREA, October resale activity stood halfway between the recessionary low of December 2008 and the year-later high of December 2009.

The leveling off of resale activity in Canada is a good sign for new home starts which have been hacking out a marked downward path for the past six months.

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