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September 21, 2011

Existing-home sales surge not bellwether

Buoyed by investor purchases, existing-home sales surged in August, but NAFCU does not believe the data are a sign of things to come.

The National Association of Realtors reported Wednesday that existing-home sales in August increased 7.7 percent to 5.03 million units on a seasonally adjusted, annualized basis. NAFCU Chief Economist Tun Wai said the surprising data marked the largest monthly increase since December. "A good chunk of the sales were by investors," he said. "The number of first-time homebuyers remain well below the level needed for a healthy existing-home market."

Sales of single family homes in August rose 8.5 percent, while sales of condominiums rose 1.8 percent. All four housing regions reported sales increases during the month. The West saw the strongest growth, 18.3 percent, followed by the South (5.4 percent), the Midwest (3.8 percent) and the Northeast (2.7 percent).

On a year-over-year basis, existing-home sales were up 18.6 percent and up in all four housing regions. The Midwest reported the strongest increase, 30.1 percent, followed by the West (23.2 percent), the South (19.6 percent) and the Northeast (12.3 percent).

The median home price of an existing home, non-seasonally adjusted, decreased 1.7 percent to $168,300 in August and was down 5.1 percent from last August. "The drop in home prices coincides with an increase in foreclosure filings as the previous backlogs resulting from the robo-signing scandal are loosening," Wai noted.

The months that homes were available for sale decreased from 9.5 months of supply in July to 8.5 months of supply in August. The inventory level decreased 3 percent from July and fell 13.1 percent from a year ago, resulting in 3.58 million unsold homes in the market.

While Wai called the existing-home sales increase "promising," he noted that more surges are needed to indicate a healthy market. "There are still too many headwinds in the marketplace right now, including tight credit," said Wai. "Cancellations increased in August to 18 percent, and increased cancellations generally reflect tight credit conditions, as buyers who agree to a deal are unable to secure a loan."

He added that it is highly unlikely a rebound in the housing market will take place before there is significant improvement in the labor market.

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