Existing home sales made a modest recovery in August, but remain weak following the sharp decline in July with the conclusion of the home buyer tax credit. The National Association of Realtors (NAR) reported a 7.6% increase in existing home sales in August to a seasonally adjusted annual rate of 4.13 million units. This follows the dramatic (-27%) adjustment in existing home sales in July – payback from the homebuyer tax credit, which drew forward home sales that would normally occur in July and August to March and April to meet the deadline for the tax credit. While the modest rise in home sales in August is a welcome development, it is still the second lowest level since the NAR began reporting total home sales in 1999.

The turn-around in August was consistent across the sectors and regions.  Single family home sales were up 7.4% to 3.62 million and condominium and coop sales rose 8.5% to 510 thousand. Regionally, home sales increased 7.9% in the Northeast, 5.0% in the Midwest, 5.2% in the South and 13.8% in the West.

Home affordability conditions are the best in more than a generation, with the average commitment rate for a 30-year fixed rate mortgage at a record low of 4.43% in August and the NAR median house price back down at its 2003 (pre-boom) level. However, this is not being reflected in recent home sales. Concerns about the weak economic conditions and slow job growth are weighing heavily on home buyer’s investment decisions.  With the economy expected to remain weak and unemployment stay high, existing home sales are expected to remain soft in September. Economic conditions and job growth are expected to improve in the fourth quarter of 2010, supporting a rebound in existing home sale.  Therefore, we expect existing home sales to recover much of the ground lost in the third quarter by the end of the year.