U.S. monthly home sales surge, but can it last?

WASHINGTON — First-time buyers across the nation taking advantage of a special tax credit gave sales of existing homes in October their biggest surge in a decade, raising hopes for a turnaround in the housing market and pleasing Wall Street.

While rising foreclosures and disappearing jobs still threaten the comeback, there are now bidding wars for houses in some cities, and home sales are nearly 36 percent above their low point in January.

The National Association of Realtors said resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from 5.5 million in September. It was the biggest monthly increase in a decade and far better than what economists expected, according to Thomson Reuters.

In King County, sales of all homes — new and existing — increased 10.8 percent in October, according to statistics released earlier this month by the Northwest Multiple Listing Service.

Analysts said the gains in the U.S. housing market mainly reflected the tax credit of up to $8,000 for new homeowners, which was due to expire this month before Congress extended it until spring — and expanded it to more buyers.

The sales figures released Monday provided the juice for a rally on Wall Street. The Dow Jones industrial average, also lifted by a weak dollar, rose more than 130 points.

The extension of the homebuyer tax credit should help sustain the housing market next year, economists said. Yet the overall economy will probably benefit only slightly from higher home sales.

There are still too many factors weighing down the recovery. Foreclosures are rising. Job creation is slow. People remain reluctant to spend. And construction of new homes — as opposed to sales of existing ones — plunged in October.

The biggest contribution the housing industry makes to economic growth is from home building.

Commissions and fees generated from home sales also help, but far less than construction.

"I wouldn't want to bet the house on housing, really, in terms of the strength of the U.S. economy going forward," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Next year is likely to bring only slight improvement, given high unemployment and tight credit, according to the National Association for Business Economics. Consumer spending will rise a lackluster 2 percent next year, restraining the recovery, NABE forecasters said.

For now, the housing market is feeding on the homebuyer tax credit, along with falling home prices and low mortgage rates.

Average rates on 30-year mortgages have hovered around 5 percent this fall.

At the current sales pace, there's a modest seven-month supply of previously occupied homes on the market.

Sales are still running 16 percent below their peak in 2005, but real-estate agents say the pace has definitely picked up.

"People who are looking, they are serious," said Harrison Tulloss, an agent withZipRealty in North Carolina's Raleigh-Durham area.

Reduced home prices and federal programs to lower mortgage rates have brought more buyers into the market. Many experts predict U.S. home prices will hit a new low next spring, perhaps falling 5 to 10 percent further as more foreclosures spill into the market.

The government has tried to counter that trend by offering the tax credit and keeping mortgage rates low.

Without the a deadline looming for the tax credit, home sales are likely to fall over the winter as buyers hibernate for a few months.

Analysts say the new deadline — buyers have to sign a purchase agreement by April 30 — means sales will surge next spring, before dropping back again later in 2010.

What happens after that is anyone's guess.

"When we do kick those crutches out from under the housing market, will it be able to stand on its own?" said Mark Fleming, chief economist with First American CoreLogic. "It's really hard to tell."

Seattle Times staff reporter Eric Pryne contributed information about King County sales.