Existing Sales Continue to Increase

Existing home sales increased for the fourth consecutive month and the share of distressed sales decreased, making the report positive news for future new home sales because each prospective repeat buyer must sell their existing home before buying a newly built home. Existing home sales increased 2.4% in July, but are still 4.3% below the same period a year ago. The National Association of Realtors (NAR) reported July 2014 total existing home sales at a seasonally adjusted rate of 5.15 million units combined for single-family homes, townhomes, condominiums and co-ops, up from an downwardly revised 5.03 million units in June.

Existing Home Sales July 2014

Three regions increased from the previous month, ranging from a 3.4% increase in the South to 1.7% in the Midwest. The Northeast remained unchanged. Year-over-year, the South reported a small increase of 0.5%, while the other three regions decreased, ranging from a 4.7% decrease in the Midwest down to a 9.9% decrease in the Northeast. Seasonally adjusted condominium and co-op sales remained unchanged in July, and were down 4.8% from the same period a year ago.

Although the first-time buyer share increased for the third consecutive month to 29% in July from 28% in June, the share continues to lag far behind the historical average first-time buyer share of about 40%. Tight lending conditions continue to buffet first-time buyers despite reports of easing standards, and a full recovery awaits their return.

Total housing inventory increased 3.5% in July to 2.37 million existing homes. At the current sales rate, the July 2014 inventory represents a 5.5-month supply, unchanged from the previous two months but 5.8% higher than the same period a year ago. NAR also reported that the July median time on market for all homes was 48 days, up from 44 days in June, and up from 42 days during the same month a year ago. NAR reported that 40% of homes sold in July were on the market less than a month, down from 42% in June.

There were significant signs that the market is being embraced by home buyers. For the first time, the distressed sales share fell below 10% since NAR began tracking the series in October 2008. The share of distressed sales decreased to 9% in July from 11% in June and 15% during the same month a year ago. Distressed sales are defined as foreclosures and short sales sold at deep discounts. All cash sales were 29% of transactions, down from 32% the previous three months and the lowest level since January 2013. Individual investors purchased a 16% share in July, unchanged from the previous two months and the same month a year ago. Some 69% of June investors paid cash, unchanged from June.

Although the July median sales price of $222,900 for existing homes of all types increased for the sixth straight month, the small increase from $220,000 in June suggests that prices are moderating. The July median sales price was 4.9% above the level a year ago, and is the 29th consecutive month of year-over-year increases. The median condominium/co-op price increased for the fifth straight month to $ 215,000 from $214,700 in June, up 3.3% from July 2013.

The Pending Home Sales Index decreased 1.1% in June after three consecutive monthly increases. The positive momentum from the very slow start at the beginning of the year suggests that the slight decline in June was a blip. The expected retreat of investors combined with an increase in existing home sales represents a curing market and is consistent with increased builder confidence reported three days ago. Slowing price increases and an increased inventory will expand choices for first-time buyers, the missing link in this housing recovery.

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