Existing Home Sales Reach 10-Month High in July

Existing home sales rose 2.4 percent in July, the fourth-consecutive monthly gain. Distressed sales accounted for only 9 percent of overall sales, the lowest on record. Inventories are up 3.5 percent on the month.

Home Buying Season Sizzles in July

July likely marks the peak in the home buying season. Existing home sales rose 2.4 percent in July to a 5.15 million-unit pace, the highest level in 10 months. One reason for the solid monthly gain is the consistent rise in inventories. Listed inventories rose 3.5 percent in July to 2.37 million homes, which represent a 5.5-month supply. Inventory remains at a historically-low level, but has increased steadily over the past five months, suggesting the housing market is normalizing. The slow start to the year, however, has made year-over-year comparisons tough. July sales are down 4.3 percent from a year earlier. Higher inventories also suggest continued moderation in price increases. The median home price is now $223,900 for single-family homes, which is 5.1 percent higher than a year earlier. The continued drop in the share of distressed sales is another sign that the housing market is returning to a more normal state. Foreclosures and short sales fell to just 9 percent of overall sales, down from 15 percent a year ago.

Housing Indicators Still Sending Mixed Signals

Although the consistent gains in existing home sales are welcome, housing indicators are still sending mixed messages. One glaring example is mortgage applications for purchase. Mortgage applications for the purchase of a home are 11 percent lower relative to the same week one year ago, and have posted a negative reading in every week in August. The weak showing of purchase applications suggests the housing recovery still faces a difficult road to recovery. Although headline existing home sales rose in July, some of the upward momentum is still being driven by all-cash transactions. All- cash transactions came in at 29 percent of total purchases. The share of all- cash transactions is finally starting to fall, however, after being stuck at 32 percent in the three previous months. The share of investor purchases, however, was unchanged at 16 percent on the month and year. Markets with heavy investor interest continue to see double-digit price gains, but along with tight credit, new buyers will still be challenged.

Looking Ahead: Still Calling for Slow Recovery

Early indications for the housing market in the coming months suggest that demand is firming. Nonfarm payrolls have risen by an average of 245,000 jobs over the past three months and the rate of job openings continues to climb. Construction and new home sales will also benefit from an improving job market. The NAHB/Wells Fargo Home Builders’ Index rose 2 points in July to 55, and buyer traffic is also up. However, pending homes sales in June, which typically lead existing home sales by about one to two months, fell 1.1 percent. So sales are not likely to strengthen much in the coming months. The level of inventories will be the key to continued sale gains, as higher inventories restrain prices and boost affordability.