Existing home sales surge

The National Association of Realtors reported a sharp increase in sales of existing homes in July, the annualized rate climbing above the five million mark for the first time in ten months in what was the largest monthly increase in almost ten years.
Existing home sales rose 7.2 percent, from an annual rate of 4.89 million units in June to 5.24 million units in July, paced by a 12.5 percent surge in sales of condominiums. From year-ago levels, homes sales are now up 5.0 percent, the first year-over-year increase in almost four years.

Inventory remains quite high and may be set to move higher as more sellers enter the market after several months of generally positive housing market news. An early indication of this was provided in the July data where, despite the sharply higher sales volume, the months of supply metric was unchanged at 9.4 months, a figure that is still more than 50 percent higher than normal.

Look for on-the-fence sellers to add to the inventory of homes for sale in the months ahead along with more foreclosed properties currently owned by banks who, to date, have been in no particular hurry to sell when sales were flagging.

Distressed sales are said to have accounted for 31 percent of all sales, down from more than half of all sales earlier in the year, and the realtors' trade group continues to point to discounting on these properties as a major reason for home prices continuing to fall.

From June to July, the median home price fell 2.0 percent to $178,400, down 15.1 percent on a year-over-year basis. Cash transactions reportedly constitute 16 percent of all sales, far above the historical average of about 10 percent.

Investors continue to snap up properties as prices have plunged, NAR chief economist Lawrence Yun commenting on the surge in activity in what were once the bubbliest areas:

Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint.

It shouldn't be surprising that sales prices for distressed properties are dismissed by the NAR as being artificial, but that the group is more than happy to point to the sales totals as a sign of an improving housing market.