Sales of previously occupied homes rose last month after the worst summer for the housing market in more than a decade. And fears over flawed foreclosure documents could keep buyers on the sidelines in the final months of the year.
Sales grew 10 percent in September to a seasonally adjusted annual rate of 4.53 million, the National Association of Realtors said Monday.
Home sales have declined 37.5 percent from their peak annual rate of 7.25 million in September 2005. They have risen from July's rate of 3.84 million, which was the lowest in 15 years.
Most experts expect roughly 5 million homes to be sold through the entire year. That would be in line with last year's totals and just above sales for 2008, the worst since 1997.
Still, sales could fall further if potential lawsuits from former homeowners claiming that banks made errors when seizing their homes make consumers fearful of buying foreclosed properties.
The Federal Reserve on Monday become the latest government regulator to announce it would be looking into whether mortgage companies cut corners on their own procedures when seizing homes.
Chairman Ben Bernanke said the Fed would look intensively to see if policies, procedures or internal controls led lenders to improperly foreclosure on homeowners. Preliminary results of an in-depth report are expected to be released next month.
"We take violation of proper procedures very seriously," Bernanke said.
In a survey taken by the Realtors group this month, about 23 percent of the 2,000 agents surveyed said they have a client who is no longer interested in purchasing a foreclosed property due to the foreclosure-document mess.
"You're going to see uncertainty on the part of homebuyers," said Quinn Eddins, director of research at Radar Logic Inc., which tracks the housing market.
Mortgage applications to purchase homes last week were 29 percent below the same week a year ago, according to the Mortgage Bankers Association. At that time, buyers were rushing to purchase homes to qualify for federal tax credits.
Last month the inventory of unsold homes on the market fell about 2 percent to 4 million. That's a 10.8 month supply at the current sales pace. It compares with a healthy level of about six months.
Dubious mortgage practices and lax lending standards were blamed for contributing to a housing bubble that eventually burst and thrust the economy from 2007-2009 into the worst recession since the 1930s. Many Americans took out home loans that they didn't understand and bought homes that they couldn't afford.
As a result, foreclosures have soared to record highs. It's one of the negative forces restraining the economy's ability to get back on sounder footing.
Now more than 20 percent of borrowers owe more than their home is worth, and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further, Bernanke said.
"With housing markets still weak, high levels of mortgage distress may well persist for some time to come," Bernanke warned.