Market CommentariesExisting Home Sales Climb in July - August 21, 2014

A half-hour into the trading day, the investment community received another encouraging report on the U.S. housing market when the National Association of Realtors reported an increase in existing home sales for the month of July. The sales data come on the heels of Tuesday’s positive news on housing starts and building permits.

Specifically, the latest report showed that existing home sales rose 2.4% sequentially last month, to a seasonally adjusted rate of 5.15 million. The report was yet another sign that the housing industry, which hit a bit of a lull earlier this year, is strengthening again. The National Association of Realtors’ Chief Economist Lawrence Yun said: “Sales momentum is slowly building behind stronger job growth and improving industry conditions. The number of houses for sale is higher than a year ago and tamer price increases are giving buyers less hesitation about entering the market.”

In addition to the increase in existing sales, there were several other positive aspects to the latest report, most notably a continued uptick in home prices. The national median price was up 4.9%, year over year, in July, the 29th consecutive monthly advance. Also, the number of distressed homes (i.e., foreclosures and short sales sold at deep discounts) accounted for just 9% of the July sales, down from 15% from July, 2013. Moreover, total existing homes inventory stood at 2.37 million at the end of July, which equates to a 5.5-month supply at the current sales pace and represents a very manageable level. This should lead to measured price increases in the months ahead, which we think will not price the majority of buyers out of the market. As noted above, affordability issues for homebuyers are improving, helped by a pickup in job creation this year.

Driving a lot of the recent demand for homes are still-low mortgage rates. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.13% in July, down from 4.16% in June. Mortgage rates fell for the third consecutive month and are at their lowest level since June, 2013.

The latest existing home sales data have to be considered another very positive sign for the housing industry. It was encouraging to see home sales rise in three of the four U.S. housing markets, with the exception being the Northeast. Too, the median price increased in all four regions last month. Especially noteworthy were the sales increases in the South (up 3.4% sequentially), and the West (+2.6%), the two biggest housing markets in the country. These favorable conditions were also highlighted by the latest strong reading for the National Association of Home Builders/Wells Fargo Housing Market Index, which rose to a sixth-month high in August.