Despite unprecedented economic turmoil, pending sales came in much stronger than the 3% drop economists had forecast.
NEW YORK (CNNMoney.com) -- Despite a meltdown in financial markets, a credit freeze and soaring unemployment, housing markets fared better than expected in October.
The number of homes under contract to be sold fell by just 1% year over year according to a report out today from the National Association of Realtors (NAR), and were down 0.7% from September. Analysts surveyed by Briefing.com had expected pending sales to slip by 3.6% year over year, and by 3% from September.
The condition of the housing market varies considerably around the country, according to NAR.
Many of the one-time bubble markets in Florida and California are now showing substantial sale gains from their depressed levels over the past couple of years. Sharp price declines in these markets have attracted bargain hunting buyers.
"Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range (of about 5 million in annualized sales)," said Lawrence Yun, chief economist for NAR.
"We did see a spike in August when mortgage conditions temporarily improved, which underscores two things - there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market," he said.
The flat home sales report was unexpected good news, according to real estate analyst Pat Newport of HIS Global Insight.
"I was expecting big drops - 5% to 7% - because of the credit crunch," he said. "[The better report] was probably because of what's happening in the West where there are a lot of distressed sales."
Distressed sales include sales of foreclosed properties as well as short sales, which is when troubled mortgage borrowers sell their homes for less than what they owe on their mortgage, with lender approval.
"Lower prices - almost irresistible bargains - and low mortgage rates are drawing some buyers out of the woodwork," said Mike Larson, a real estate analyst for Weiss Research. "You see distressed properties being sold at fire-sale prices."
For example, Larson notes that a condo near his southern Florida home is now on the market for $64,000 - just $1,000 more than what it was originally sold for back in 1984.
At the same time, however, the economic crisis is hurting sales. Unemployed people don't buy houses.
"These two economic forces will be duking it out over the next few months, leading to very choppy sales," said Larson.
NAR found that sales in the West climbed 17.4% in October, compared with a year ago. Northeast sales plunged 14.1% year-over-year; Midwest sales dropped 6.8%; and sales in the South inched down 2.9%.
Yun is forecasting a very slow housing market recovery. He expects sales of existing homes to total about 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010. He said new home sales will be 486,000 this year, but will fall in 2009 to 393,000 and then rebound in 2010 to 446,000.
Current economic trends are worrisome, according to Yun. He's forecasting a rise in unemployment to more than 8% by the first quarter of 2009, and expects to see a contraction in the gross domestic product of 5.2% in the current quarter compared with a year ago.
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