• Existing home sales increased by 12.3% in December to a seven month high of 5.28 million, surpassing market expectations for a 4.1% gain. The details of the report were strong. Condo and co-op sales jumped by 16.4% and single-family sales increased by 11.8% in December.

• The median home price edged down by 0.8% to $168,800 in December. On a year-over-year basis, median home prices were also down 1.0%.

• Foreclosures and short-sales accounted for 36% of total sales in December, compared to 33% in November.

• Regionally, home sales were up in all four census regions, with the West recording the largest increase (16.7%), followed by Northeast (13.0%).

• The supply of homes available for sale declined by 4.2% to 3.56 million. At the current sales pace, it would take 8.1 months to sell these houses, compared with 9.5 months in November.

• December’s strong increase in existing home sales is encouraging, signaling that organic demand (unrelated to tax stimulus) is gaining traction. Record low borrowing costs, coupled with the less costly houses, and rising income and employment should continue to strengthen the demand for homes.

• While mortgage delinquency rates have shown improvement as fewer loans enter delinquency and more loans are moved through the pipeline to foreclosure, the sheer stock of potential distressed sales will continue to pull down home prices and limit new housing construction over the next year.

• The backlog of foreclosures and uncertainty surrounding home prices are the main constraints to a more normal functioning of credit markets. Fortunately, outside the mortgage market, credit availability, credit quality and credit growth are improving. Further improvement in home sales and an acceleration of credit growth could signal a move to a much stronger pace of economic growth. For more on recent credit trends and their implications for the U.S. recovery please see our recent report “Outside of Mortgages, U.S. Credit Showing Broad Improvement”.