Despite inventory levels being nearly a quarter below July 2011, existing home sales improve for the fifth consecutive month, according to the National Association of Realtors.
Existing home sales up as market shifts
As most economists predicted, the National Association of Realtors’ existing home sales report for July improved, as monthly sales rose in every region but the West, which the NAR points out is due primarily to “very tight” inventory. Nationally, sales of existing homes rose 2.3 percent to a seasonally adjusted annual rate of 4.47 million in July from 4.37 million in June, and are up 10.4 percent over July 2011, “even with constraints of affordable inventory,” the association noted in a statement.
Dr. Lawrence Yun, NAR chief economist, said housing affordability conditions are very good. “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates. Combined, these factors are helping to unleash a pent-up demand. However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”
NAR is urging the government to “expeditiously release the foreclosed properties it owns in inventory-constrained markets.”
Where sales levels should be
Given population and demographic demand, Dr. Yun said that existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.55 percent in July from 3.68 percent in June; the rate was 4.55 percent in July 2011; recordkeeping began in 1971.
“Fewer sales in the lower price ranges are contributing to stronger increases in the median price, but all of the home price measures now are showing positive movement and that is building confidence in the market,” Yun said. “Furthermore, the higher median price naturally means more housing contribution to economic growth.”
Median home prices on the rise
The good news for underwater borrowers and existing homeowners, but less welcome news for buyers in the market is that the national median existing-home price for all housing types was up 9.4 percent over July 2011, hitting $187,300. July marks the fifth consecutive month of improving prices, the first time since May 2006 that prices have improved for this many months in a row. NAR notes that the July gain was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.
Distressed homes accounted for 24.0 percent of homes sold in July, (12 percent were foreclosures and 12 percent were short sales), down from 25 percent in June and 29 percent in July 2011. Foreclosures sold for an average discount of 17 percent below market value in July, while short sales were discounted 15 percent.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., said pricing is the primary factor in determining how long homes stay on the market. “Fully one-third of homes purchased in July were on the market for less than a month, and only 21 percent were on the market for six months or longer. Sellers should carefully consider a Realtor’s ® advice about marketing their homes,” he said.
Housing inventory continues to tighten
According to the NAR, total housing inventory at the end of July rose 1.3 percent to 2.4 million existing homes available for sale, representing a 6.4 month supply at the current sales pace, a 0.1 month improvement over June. Inventory listed is 23.8 percent below July 2011, when there was a 9.3 month supply.
Dr. Yun said there are distortions in housing inventory. “The total supply of housing inventory appears to be balanced in historic terms, but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers. The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers.”
First time buyers accounted for 34 percent of purchasers in July, all-cash sales accounted for 27 percent of all transactions, and investors purchased 16 percent of homes in July. Single-family home sales rose 2.1 percent in July, rising 9.9 percent from July 2011, as the median existing single-family home price rose 9.6 percent over the year to $188,100.