Existing Home Sales Spike Belies a Market Still Struggling

Today's existing-home sales report seems to offer cause for celebration, but before you rush to sell your house to cash in, best look beyond the smoke and mirrors.

Sure, sales volume leaped 9.4% in September to its highest level in two years. The biggest month-to-month gain in at least a decade far exceeded the spike in October 2001, which followed a month where many distraught Americans put off home shopping.

And then there was the inventory drop to trumpet. The number of previously owned homes on the market last month fell 7.5% to 3.6 million units, which represents a 7.8-month supply at the current sales pace and the lowest level since March 2007. A seven-month supply generally brings price stabilization, according to the National Association of Realtors.

But what drove this stunning burst in sales activity? Like it or not, market manipulation in the form of government handouts that have cost U.S. taxpayers an estimated $15 billion, been fraudulently tapped and yet may be extended.

With the federal government's $8,000 tax credit for first-time homebuyers set to expire Nov. 30, many procrastinators raced to viewings and open houses to snag a property in time to leave a 60-day closing window. Sales for October could soar even higher than last month for that very reason.

More importantly, while sales volume rose in September, sales prices declined yet again. The median price of a sold home fell to $174,900, down 8.5% from a year earlier. It's little consolation that was the smallest drop in 13 months.

The housing market has turned, but it is nowhere near recovered. That will happen when sales of mid- and high-priced homes pick up, which will propel the monthly median price way up. When the majority of sales are no longer in the lower end of the market, that's when you can pop the champagne to celebrate your home regaining value.