The National Association of Realtors' (NAR) index of existing home sales is set to fall by 2.7% in October, which would push the pace of sales from an annualized 5.18 million down to 5.00 million. Such a fall stands in contrast to the 5.5% decline in September, but it would be in line with the 2.2% drop recorded in August. The index has been oscillating back and forth for many months now.

October was the worst month so far in the credit crisis that began in August 2007, but turmoil in the markets can have a positive or negative impact on houses. A lack of lending from banks makes it difficult for many people to get loans, but foreclosures have contributed to pushing down home prices, which helps sales.

Economists at Natixis note that pending home sales fell 4.6% in September, suggesting a similar drop in existing sales. "Actually pending home sales (when a contract of sale is signed) are a leading indicator of existing home sales (sales at the time of closing) with a 1-2 months lag." they said. "Thus, we expect existing home sales to decrease by 3.9% MoM to 4.98 million units annualized."

The report follows the release of the housing starts & permits index, which showed construction plans for new homes fall to its lowest level on record. A decline in new homes doesn't always coincide with a decrease in existing sales, however; in fact, the comparatively low prices of existing sales can have a negative impact on new home sales.

Upon the release of the new home sales index last week, Nomura Securities' chief economist Dave Resler said, "Until lending costs fall into an alignment that is more typical in a deflationary recession, the housing sector will remain moribund."

The median price of an existing home fell to $191,600 in September, down from $203,100 in the prior month.

The pace of sales will have a direct impact on the level of overhang, which is sitting at historically high levels despite a decrease last month. The current pace of inventories is a 9.9-month supply of homes, and economists say a recovery in the housing market cannot take place until that figure is slashed significantly.

By Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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