Home sales have climbed to their highest level in 2.5 years, according to data released by the National Association of Realtors for the month of October, spurred by buyers jumping on the first-time buyer tax credit. There is currently only a seven-month supply of homes on the market, which may explain the return of bidding wars in Manhattan. [ The Return Of Bidding Warfare ]

Nationwide, sales are now 36 percent up from their January’s bottom, resales jumped 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October from the 5.54 million in September, outpacing economists’ estimates of 5.65 million. All four region of the U.S. experienced growth, with the Midwest leading with a 26-percent increase and the Northeast closely following with 25 percent, without adjusting for seasonal factors.

The median sales price was $173,100, 2 percent lower than in September and still 7 percent down from the previous year. Sales are also still 15 percent below their peak in 2005, and some real estate analysts expect another 5 to 10 percent decrease in prices due to more foreclosures. Much of the sales activity has been attributed to the first-time buyer tax credit, which was originally due to expire at the end of the month. However, the $8,000 credit has been renewed by Congress, which actually expanded eligibility, allowing a $6,500 tax credit for home purchasers to buyers that have owned their current homes for at least five years. The NRA report reflects offers and sales under the assumption that the credit would end.

Analysts are also concerned about what may happen if the Federal Reserve, which currently maintains close-to-zero interest rates [ Bernanke Keeps The Course ], would shift policy: any increases in mortgage rates, in an already tight market, would threaten demand. Furthermore, recent reports are showing that many once credit-worthy potential home-buyers may be at risk of foreclosures—14 percent of current mortgage owners, according to recent reports, have either missed payments or are in foreclosure.

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