Updated at 11:03 a.m. EDT
Home resales rose in September to the highest level in more than two years, beating expectations, as buyers scrambled to complete their purchases before a tax credit for first-time owners expires.
The National Association of Realtors said Friday that sales rose 9.4 percent to a seasonally adjusted annual rate of 5.57 million in September, from a downwardly revised pace of 5.1 million in August. Sales had been expected to rise to an annual pace of 5.35 million, according to economists surveyed by Thomson Reuters.
The median sales price was $174,900, down 8.5 percent from a year earlier, and slightly lower than August's median of $177,300.
"There's a mini-boom going on in the housing market," said Thomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications, a research firm.
The inventory of unsold homes on the market fell about 7 percent to 3.63 million. That's a 7.8 month supply at the current sales pace, and the lowest level since March 2007. Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago.
Sales rose around the country, especially in the West, where they grew 13 percent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.
First-time homebuyers and investors are snapping up those homes and taking advantage of low mortgage rates. These buyers can also take advantage of a tax credit of 10 percent of the sales price, up to $8,000, if the sale is completed by the end of November.
The tax credit is so important to some buyers that they are adding a clause to their contracts, allowing them to back out if the sale doesn't close by Nov. 30.
While home sales and housing construction have risen steadily after hitting bottom earlier this year, most economists believe that the worst isn't over for home values.
Prices could see a double dip because rising unemployment is causing more. The jobless rate, currently at 9.8 percent is expected to rise as high as 10.5 percent next year, causing more people to be unable to afford their monthly mortgage payment.
"There's more supply that's going to come into the marketplace," said Stan Humphries, chief economist at real estate Web site Zillow.com. "That additional supply will outpace demand."
With concerns about the housing market still prominent, Congress is considering several proposals to extend the tax credit for first-time buyers. Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend it through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.
Realtors and homebuilders are pressing lawmakers to do so, arguing that the tax credit is crucial to get the housing market back on its feet.
"We are not there in terms of removing the consumer fear factor," said Lawrence Yun, the Realtors' chief economist.
One potential roadblock, however, emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent.
At a hearing on Thursday the Treasury Department's inspector general for taxes questioned the legitimacy of some 100,000 claims for the credit, potentially including some illegal immigrants and 580 people under 18. The youngest taxpayers to apply for the credit were 4 years old.