New home sales spike in October
Sales jump 6.2% compared with September.
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NEW YORK (CNNMoney.com) -- New home sales spiked in October, one month after declining unexpectedly.
The Commerce Department said new home sales rose 6.2% last month, to a seasonally adjusted annual rate of 430,000, from an upwardly revised rate of 405,000 in September. It was the sixth time new home sales had risen in the past seven months.
The October increase far surpassed industry expectations. A panel of expert forecasts compiled by Briefing.com had predicted new home sales of 404,000.
"The evidence continues to show stabilization in the housing market," said Mike Larson, a real estate analyst with Weiss Research. "It's not a huge new bull market, mind you, but an end to the relentless flood of bad news we had [in previous years].
"The conditions are in place that will enable prices to begin stabilizing," he added.
New houses sold in October for a median price of $212,200, up from $204,800 in September. The average sales price was $261,100.
Larson was especially positive about the reduction in inventory. There were 239,000 new homes on the market at the end of the month, a 6.7 month supply at the current sales rate.
"Construction has been cut to such low levels that the absolute number of homes on the market is at its lowest level since 1971," said Michelle Meyer, an economist with Barclays Capital. "The supply has been reduced significantly and is calibrated better with demand."
There has been some rise in demand for those few homes on the market but, compared with recent years, sales are still very modest. At the height of the market in July 2005, new homes sales peaked at an annualized rate of nearly 1.4 million. That puts October's rate about 70% lower.
The sales report followed a release last week from the National Association of Home Builders revealing that home construction fell to a six-month low during October.
Some of that decline probably stemmed from a reaction by builders to the impending end of the first-time homebuyers tax credit, which had been due to lapse Dec. 1.
The credit has been extended, however, and expanded to include existing owners. That should provide a boost for new home construction again.
Residential construction is a large part of the economy. During the third quarter, the home building and remodeling industry added about a half percentage point to the 2.8% rise in the gross domestic product, according to Meyer.
"Home construction often has a big impact on quarterly growth," she said. 
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