Existing Homes Sales Boosted By Expiring Tax Credit

Existing homes sales were up a whopping 9.4% to a 5.57 million annual rate from 5.09 million in August. August was revised down slightly from down 2.7% to down 2.9%. The level of 5.57 million is the highest since 5.73 million during July 2007. So, the housing market is partying again like it's 2007. Sort of. The median price was down 8.5% year-over-year to $174,900.

In other encouraging news for housing, inventories declined to a 7.8 month level, down from 9.3 months in August. Furthermore, the percentage of distressed sales represented 29% of sales, down from 31% the prior month and 45% to 50% in late 2008 and early 2009. Huge volumes selling at rock bottom prices with inventories returning to relatively normal levels point very strongly to a bottom in housing, if it weren't for three nagging questions:

1. What about the foreclosure pipeline? NODs, delinquencies and foreclosures are still rising, with mortgage mods merely delaying the inevitable.
2. When the tax credit expires, are sales going to plummet again, similar to the expiration of the cash-for-clunkers program?
3. What happens to interest rates when the Fed stops its unprecedented purchases of Treasuries and MBS? (hint: rates are going higher)