Home sales surge. Time to party?

The pace of existing-home sales was 10.1% higher in October than it was in September, according to figures out today from the National Association of Realtors (NAR). That jump puts sales back where they were in February 2007 and is sure to bring renewed optimism about the state of the housing market. In September we had an eight-month supply of houses sitting on the market. Now we're down to a seven-month supply. That's in the neighborhood of normal.

Realize, though, that a lot of the sales activity is still happening at the lower end of the market. Sales of properties costing less than $100,000 are up 18% from a year ago, and houses priced between $100,000 and $250,000 have seen a 30% surge in sales. Beyond that, sales dwindle. Homes in the $250,000-$500,000 range are up less than 8%, and sales of residences selling for $750,000 to $1 million have increased just 2% over the past year. Depending on where you stand, you may or may not be seeing a more-robust real estate market.

Two things have been driving sales at the low end. Thing one: first-time home buyers, who represent nearly half of all folks out there buying, according to a Campbell/Inside Mortgage Finance survey of 1,500 real-estate agents. Part of the October surge in sales surely had to do with the impending expiration of the  $8,000 first-time home buyers tax credit. That credit has since been extended into next year. Will sales drop off in coming months now that everyone knows they've got five more months to lock in those contracts? Very possibly.

That Campbell/Inside Mortgage survey points out something else interesting: that the Federal Housing Administration is guaranteeing about 60% of all first-time home-buyer loans. That's not necessarily a bad situation if it helps to kick-start private lending, but having the Feds insure such a high percentage of mortgage finance isn't exact a normal state of affairs, either.

The other low-end driver has been sales of distressed properties like foreclosures. Some 30% of October sales could be chalked up to such properties, according to NAR. There's some notable movement there, too. NAR reports people starting to get into bidding wars over foreclosures, and Campbell/Inside Mortgage reports that investors are starting to pull back from the market as the really steep discounts go away. Those shifts help to account for a less-steep house-price decline in October. According to NAR, the median sales price declined 7.1% between October 2008 and October 2009, the smallest year-over-year drop in more than a year.

All of this, though, is somewhat backwards looking—it can take weeks or even months for an existing-home sale to reach closing and register in the data. A better real-time gauge of where things stand can often be had from Commerce Department numbers on home construction. That data comes out on Wednesday.

Barbara!