WASHINGTON (MarketWatch) — U.S. home builders took a big step in September toward reducing the gigantic oversupply of homes, boosting sales slightly, slashing prices and reducing the number of unsold homes at a record pace.

Sales of new homes rose an estimated 2.7% in September to a seasonally adjusted annual rate of 464,000 in September, the Commerce Department reported Monday, close to the 460,000 pace predicted .

Sales jumped 23% in the West, bouncing back from a similar decline in August. Meanwhile, sales in the Northeast fell to lowest level recorded in the past 35 years, and sales in the Midwest fell to a 17-year low.

Nationally, sales in September were down 33% compared with September 2007.

The inventory of unsold homes fell a record 7.3% in September to 394,000, the lowest level in four years. In the past year, inventories have fallen 25.4%, the biggest percentage drop since the government began tracking the data in 1963.

At 394,000, the inventory represents 10.4 months’ worth of sales, about double the normal inventory. It’s taking more than 9 months after completion for the typical new home to sell, a sign that builders have much more work to do to bring supply down to match demand.

In the past year, the number of homes for sale that were under construction has plunged by 35%.

The median sales price fell to $218,400, down 9.1% in the past year. It’s the lowest median sales price in four years.

Government statisticians have low confidence in the monthly report, which is subject to large revisions and sampling and other statistical errors. In most months, the government isn’t sure whether sales rose or fell. The standard error in September, for instance, was plus or minus 12.1%. Read the full government report.

The government says it can take up to five months to establish a new trend in sales. Over the past five months, sales have been on a 489,000 annual pace, 33% slower than a year earlier and about 3% lower than August’s five-month trailing average.

In all of 2007, 776,000 new homes were sold, down from 1.05 million in 2006.

Regionally, sales plunged 21% in the Northeast to 22,000 annualized, the lowest pace recorded in 35 years. Sales rose 23% in the West to 108,000 annualized after plunging 30% in August. Sales dropped 6% in the Midwest to a 17-year low of 65,000 and rose 0.7% in the South to 269,000.

The Media Are Missing the Housing Bottom   

Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.

For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.

And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.

Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.

It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better.

And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books.

by Larry Kudlow at NRO

During periods of high inflation, investors inevitably look for safe, solid investments. Gold, collectibles, bonds and other instruments become more attractive. Real estate is ultimately the safest place one can put their money, because real estate has more inherent value than any of the other so called safe investments.

The intrinsic value of property is further strengthened by the fact that everyone needs a place to live, no matter how bad the economy is. What this means for the current market is that even as the economy slows and inflation creeps up, housing will regain strength as money moves back to historically safe havens.

This may fly in the face of the current media attention on the credit crisis and the subsequent effect on housing, but historical trends don’t die just because of modern fears and artificial bubbles. Already the housing market is bucking trends and picking up.

The naysayers are disappointed again because the US Economy refuses to head into a recession. Overall economic growth was 1% in the first Qtr. and housing sales just posted a highly unexpected 2% increase.

Median home prices are continuing to revalue lower and this recent increase rides on the heels of previous months of declines. However, sales increase 5.5 percent in the Midwest 4.6 percent in the Northeast and 2 percent in the West.

More good news for real estate is that inventory is now 10.8-months which dropped nicely from 11.4.

Couple the above numbers with the recent mortgage bail out bill and it is easy to see the US housing market avoiding the slump that so many have predicted was inevitable. Certainly we will not be returning to the boom years of the first half of the decade.

To prevent the rising number of “walkaways”, people who just give up their homes, Fannie Mae is offering a series of new loans to help those close to foreclosure. While seen as counterintuitive by some in the mortgage industry, the bridging loans are intended to help homeowners weather rocky periods and ultimately keep their houses.

Additionally, Fannie Mae announced that they will more aggressively pursue financial compensation from homeowners who “walkaway” yet still have assets. This move reflects a growing trend in the credit markets that started with bankruptcy reform. Lenders aggressively pursuing consumers for payment of interest and debt in cases where borrowers still have the ability to pay.

The new policies sent a positive message to Wall Street which is still reeling from huge credit losses attributed to overly generous lending for the last 7 years. Some blame the current lending crisis on community activist pressure to loan money to minorities. The CRA:
The Community Reinvestment Act (CRA) was established by Congress in 1977. The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution’s geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.”
However, on inspection this doesn’t hold up. Blaming CRA for the mortgage meltdown when only one in four sub-prime loans were made by the institutions fully governed by CRA.

Janet Yellen, president of the San Francisco Federal Reserve disagrees with the blame the CRA. She says:

“Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts.”

Home Sales Rose, Prices Fell in February

After declining for 2 quarters, sales of existing homes increased in February which signals sellers willingness to adjust to market forces and lower prices. 
The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units.

The trade group reported that the median existing sales price in February fell to $195,900. The drop to $195,900 was the largest year-over-year drop on record, however the records only go back to 1999.

Regionally, sales rose by 11.3 percent in the Northeast–which reflects the completely local nature of the widely over reported real estate slump and the health of the economy in the Northeast. 

Midwest  home sales rose a modest 2.5 percent indicating steady economic performance. There was a mild 2.1 percent increase in sales in the South.

 Not surprisingly, the price inflated West saw a decline in the sales, where they dropped by 1.1 percent. But even that 1.1% dropped has surprised many in the real estate industry and economists, who were predicting a catastrophic drop.

 Overall, February’s numbers indicate an adjusting real estate market, in which prices are rationalizing and people are selling and buying based on present market conditions rather than past prices or future expectations, which is what a healthy market does.

The existing home sales numbers do not change the fact that developers of new housing are cutting back dramatically and that sales of new units haven’t kept pace with existing home sales.

Amid the doom and gloom hype by the media right now, all across the country there is a quiet real estate phenomenon going unnoticed. Neighborhoods close to dynamic city centers are maintaining their home values. There are a couple of reasons that having a home in an area close to the city center preserves your equity.

First, rising gasoline prices have made commuting more expensive. Second, the cookie cutter look of many outer suburban or exurb developments doesn’t call out to the soul. Third, commuting is a huge time expense for most people, so anything that can save us time, we value. Fourth, arts, theater, music, food, restaurants and the like attract people to close in suburbs.

 The bottom line is– location, location,location– which has and will always be the case when it comes to real estate.