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Interest rates, tax credits provide surge for residential real estate

Realtors group says renewed first-time buyer credit could drive demand through spring.Existing-home sales enjoyed a 10.1 percent surge in October on the strength of the first-time homebuyer tax credit and low interest rates, according to the National Association of Realtors.

These sales continued a trend of rising activity established over the past seven months, with inventories on the decline.

Sales of existing homes, including single-family, town homes, condominiums and co-ops, recorded a seasonally adjusted annual rate of 6.1 million units in October, from a downwardly revised pace of 5.54 million in September; that level is 23.5 percent higher than the 4.94 million-unit level from a year ago. Sales activity is at the highest pace since February 2007, when it hit 6.55 million.

“Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” said NAR chief economist Lawrence Yun.

The $8,000 credit originally was to expire Nov. 30, but Congress renewed it earlier in the fall, and broadened it to include those who have been in their current homes for at least five years. The program now will expire in April.

That extension may heighten the anticipation of the typically busy spring buying season, according to NAR.

“There is still a large pent-up demand that can be tapped before the tax credit expires,” Yun said. “Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was canceled or fell through — there likely are many more buyers who were attempting to purchase, but simply ran out of time.”

Historically, low interest rates also are providing a boost to the market. According to Yun, rates in October were the third lowest since 1971. According to Freddie Mac, the national average commitment rate for a 30-year, conventional mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reporter the 30-year rate dropped to 4.83 percent.

E-mail Joe Arney at jarney@njbiz.com

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