Sales of existing homes surged 9.4% in September to a seasonally adjusted annual rate of 5.57 million units, as lower prices and the looming expiration of a federal tax credit lured more buyers into the market.
The data, released Friday by the National Association of Realtors, portrayed a housing market that continues to stabilize across the country and gives ammunition to those trying to extend the $8,000 tax credit for first-time home buyers.
Prospects for extending the credit remain mixed. On Capitol Hill, there are deep concerns about the program's cost. While many lawmakers support some form of extension, they want the credit's substantial cost to be offset by tax increases or spending cuts.
Extending the current credit would cost about $1 billion a month, according to congressional estimates. Some lawmakers are backing an expanded credit that would last through June and cost about $16.7 billion.
Senate Majority Leader Harry Reid of Nevada has been trying to reach an agreement for a 13-month extension that would provide up to the full $8,000 for four months, and gradually reduce the credit's value over the remainder of 2010.
Aides say Mr. Reid aims to have a vote on the measure as part of next week's debate over extending federal unemployment insurance benefits. The package also is likely to include bigger tax refunds for businesses that have suffered operating losses during the downturn.
The new sales data could help backers of the credit, scheduled to expire Nov. 30. But the improvement also could undercut a key argument of backers -- that the recovery remains fragile enough to require an extension. It also doesn't alleviate concerns the credit has been subject to widespread abuse, as the Internal Revenue Service pursues more than 100,000 suspected improper claims.
Existing homes sales were up across the country, the NAR reported. The median price of an existing home has fallen 8.5% year-over-year, but prices have stabilized from their free-fall during the worst months of the recession.
The spike in demand reduced housing inventories to a two-year low. Housing inventory was down 7.5% to 3.63 million homes in September, reducing the nation's housing supply to 7.8 months from 9.3 months in August, assuming the current sales pace.
The housing market is still in rough shape: The supply of homes is still about three months bigger than normal, and distressed sales, such as foreclosure auctions, continue to drag down prices. But many analysts say the broad rebound in sales shows the market is being driven by more than first-time buyers lured by the tax credit.
Sam Khater, senior economist for First American CoreLogic Inc., said sales would likely decline only marginally if the tax credit were allowed to expire. He argued that other programs of the Federal Reserve and Federal Housing Administration have played a larger role in luring buyers.
—Jessica Holzer contributed to this article.
Write to Conor Dougherty at conor.dougherty@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
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Strapped Borrowers Head to Court
Homeowners Press Mortgage Servicers to Rule They Are Eligible for Loan Modifications
Some struggling homeowners are turning to the courts in a bid to force mortgage servicers to consider them for the Obama administration's foreclosure-rescue program, arguing they are eligible for help but haven't received it.
The suits are the latest sign of difficulties some borrowers are having with the program, which has helped more than 500,000 people begin trial loan modifications since it was announced in February.
The program requires mortgage servicers to screen borrowers for eligibility for modifications before completing a foreclosure. But a growing number of borrowers say this isn't happening, or that their requests for help are improperly rejected by the servicers, which collect loan payments and work with delinquent borrowers.
"People are unbelievably frustrated with the way [the modification program] is working because it is so nontransparent, and because there is such a basic distrust of servicers," said Ira Rheingold, executive director of the National Association of Consumer Advocates, a group of attorneys and consumer advocates who work with homeowners facing foreclosure.
Statistics aren't available, but attorneys say legal action tied to the rescue program is being taken in states including California, Florida, Ohio and Pennsylvania. A lawsuit seeking class-action status in U.S. District Court in Minnesota wants to halt foreclosures on homeowners eligible for the rescue program until the administration puts in place certain procedural safeguards, such as creating a formal appeals process.
South Carolina Supreme Court Chief Justice Jean Toal in May issued an order requiring that all complaints seeking foreclosure state whether the loan is subject to the rescue program and, if so, why the borrower doesn't have a loan modification.
Victor Jones Jr., who operates a loader for a recycling company, recently asked the Greenville County South Carolina Court of Common Pleas to require Wells Fargo & Co. to consider him for the rescue program before proceeding with a foreclosure. The case is pending. After being contacted by a reporter, Wells Fargo reached out to Mr. Jones and is now attempting to determine what type of loan workout he qualifies for, a company spokesman says.
After months of growing pains, the Obama administration in September said the modification effort was picking up steam. But a critical report issued earlier this month by a congressional panel said there was "evidence that eligible borrowers are being denied incorrectly."
Margery Golant, an attorney in Boca Raton, Fla., has raised the modification issue in roughly 50 foreclosure cases, but has received rulings in only two of them. In one case, a Circuit Court judge in Broward County stayed the foreclosure proceeding by 90 days to provide time for J.P. Morgan Chase & Co. and the borrower to work out a loan modification. A spokesman for J.P. Morgan said the borrower hadn't responded to previous offers of help.
Sometimes the legal maneuver doesn't win in court but is enough to get the servicer's attention. In August, Marvin Walker, a disabled former corrections officer, asked the Court of Common Pleas in Philadelphia County to set aside the foreclosure sale of his home and require his mortgage company, Saxon Mortgage Services, to consider a loan modification. In September, the court denied his request.
But while the case was pending, Saxon, a unit of Morgan Stanley, agreed to put him on a trial modification, said his attorney, Elizabeth Goodell of Community Legal Services of Philadelphia. "Now I can afford this," said Mr. Walker, whose monthly payment dropped by nearly 50% to $787. Mr. Walker said he didn't contact Saxon earlier because he thought his attorney at the time was negotiating with it.
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