The housing market performed miserably in 2008, but the final month of the year showed an upside surprise in sales of previously-owned homes against expectations of a third consecutive monthly decline.

The pace of existing home sales jumped 6.5% in December, boosting the annual pace of sales up to a 12-month high of 4.74 million. November's data was revised down to a pace of 4.45 million units, which marked a 9.4% reduction in sales compared to October.

Economics strategist Millan Mulraine from TD Securities called the release "surprising". He noted that sales were concentrated in the West (up nearly 14% in December) and in the South (up 7.4%), which suggests that buyers are picking up foreclosed properties at discount prices.

Whatever the reason, the December boost is the second biggest monthly gain ever recorded in the National Association of Realtors' (NAR) index, which began in January 1999. In the course of 2008, however, the pace of sales fell by 3.5%.

"It appears some buyers are taking advantage of much lower home prices," said NAR chief economist Lawrence Yun in an accompanying press release.

Total housing inventories fell significantly to a 9.3-month supply in December, down from the 11.2-month overhang recorded in November; in a healthy market, the months' supply would be around six months.

"The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions," Yun said. "Buyers will continue to have an edge over sellers for the foreseeable future."

In 2008, the median price for a previously-owned home fell 15.3% nationwide, concluding the year at $175,400.

BMO economist Jennifer Lee said the release was "definitely good news," but that the housing sector will need to see "many more months" of such reports for the market to turn around.

Market Reaction:

The housing index coincided with a better-than-expected +1.3% reading in the Leading Economic Indicators index. Within five minutes of those releases, U.S. equities continued to move higher. The Dow Jones was near session highs, up 109 points to 8189, the S&P 500 was up 17 points to 848, and the NASDAQ was up 28 points to 1505.

In currencies, the CAD/USD was pushing higher, up 0.0096 to 0.8217, just off an earlier reached session high of 0.8222.

Looking at the bond market, fixed rate strategist Ian Lyngen from RBS Greenwich noted that U.S. bonds sold off following the release, but warned the impact would be short lived.

"The market remains slightly lower and flatter on the day, but most of that tone was set during the overnight session," he said. "Flows are modest this morning, with cash trading at 75% of the 10-day moving-average and we have seen central bank buying in the 2-year sector and selling in the 10-year sector - separately."

By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2009