Sales of existing homes posted a tiny increase in October, the first gain in eight months, but the median price of homes sold fell by a record amount.
The National Association of Realtors said Tuesday that existing home sales edged up 0.5 percent to a seasonally adjusted annual rate of 6.24 million. It was the first sales increase since February.
However, the median, or midpoint, price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record. It marked the third straight month that home prices have fallen compared to the same period a year ago, the longest stretch of such declines on record.
Michelle Meyer, an economist at Lehman Bros., said the rise in sales was partly a response to falling prices and a recent dip in mortgage rates
"The pickup in home sales reflects stabilization in demand and the first signs that the housing market is beginning to balance," she said in a note to clients.
Economist Joel Naroff of Naroff Economic Advisors said the report "does not point to a major housing meltdown," but he noted that there is a "huge" supply of unsold homes and condominiums on the market.
The number of homes on the market is up 34 percent from a year ago and represents a supply of more than seven months at current sales rates, compared with an average of just four or five months in the boom years of 1999 through 2005.
"The housing market is far from the bottom," Naroff said in a research note. "Sellers will have to overcome their state of denial and start dropping prices even more to clear this market. And once that happens, we will then have to convince buyers that prices have stopped falling. We are a long way from that point."
The Federal Reserve, he said, is concerned that the housing market could send the economy into a downturn, "but as of now that has not happened."
Fed Chairman Ben Bernanke said Tuesday that risks from inflation or a worse-than-expected housing slump could further complicate things for an economy that already is in slowdown mode.
“The deceleration in economic activity currently under way appears to be taking place roughly along the lines envisioned,” Bernanke said in his most extensive comments on the economy since the summer.
The slowdown in overall activity mostly reflects the housing slump, he said in remarks prepared for delivery to the the National Italian American Foundation in New York.
Analysts said it was likely that home prices will continue declining for the rest of this year as reluctant sellers, accustomed to the booming market conditions of previous years, finally cut their asking prices.
The once-booming housing market, which had been one of the economy’s standout performers for the past five years, has experienced a significant slowdown this year, which has dragged down overall economic growth.
Some analysts have worried that the correction in housing could be severe enough to drag the entire country into a recession. However, those fears have eased in recent months as a big fall in gasoline and other energy prices has provided support for consumer spending.
For October, sales were down 2.9 percent in the Northeast and 1.2 percent in the South and unchanged in the Midwest. The national increase was due entirely to sales in the West, which were up 6.4 percent.
"While October’s surprisingly strong existing home sales are a positive, we are cautious to read a one-month increase as the beginning of a new trend," said analyst Phillip Neuhart of Wachovia Securities. "It is more likely that sales will remain weak well into next year."