The unexpected increase in the pace of existing home sales in October was driven by the single-family home component, which saw sales rise 1.6% to 4.38 million annualized units in the month. Sales of condos and co-ops held steady at 590,000 annualized units. The pace of existing home sales rose in the West (+4.4%), Midwest (+2.8%), and South (+2.1%), while the Northeast saw sales decline (-5.1%).

The national median sales price of existing homes fell 4.7% on a year-over-year basis in October, the eleventh consecutive decline. Distressed sales (foreclosures and short sales that typically sell at steep discounts) accounted for 28% of total sales, which was down from 30% in the prior month and 34% in October 2010. All-cash sales accounted for 29% of transactions, which was down slightly from 29% in September and unchanged from last October. The absolute number of existing homes available for sale fell for the fourth straight month, down 2.2% to 3.33 million units in October. At the current pace of sales, it would take 8.0 months to clear this inventory of unsold homes, which is down from 8.3 months in September but still well above pre-recession levels of around 5 months.

Recent data have indicated that the new homes sector is showing signs of stabilizing; however, the resale sector remains under pressure, and prices continue to be weighed down by high volumes of distressed properties on the market. While the number of existing homes available for sale has drifted lower in recent months, this trend may not be sustained in the near term as the end of the moratorium on foreclosures related the erroneous seizure of properties by banks could push even more homes onto the market and drive prices down further. Indeed, recently released data from the Mortgage Bankers’ Association showed that new foreclosures increased for the first time in a year in the third quarter of 2011. As well, the National Association of Realtors noted in today’s report that tight credit conditions are causing would be homebuyers to be “thwarted in the process” and one-third of contracts failed in October due to such reasons as declined mortgage applications. The combination of elevated supply and restricted demand is likely to keep the recovery of the residential real estate market fairly subdued in the near term.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.