The Wall Street Journal
24 August 2012
Sales of previously owned homes notched another rise in July, and prices showed annual gains for the fifth consecutive month, the latest evidence that Americans are starting to wade back into the housing market.
The National Association of Realtors said Wednesday that sales of existing homes were running at a seasonally adjusted annual rate of 4.47 million units in July, up 2.3% from June and 10.4% from a year earlier.
Thomas Lawler, an independent housing economist, said demand has been especially strong in areas where prices fell sharply during the housing bust, indicating that buyers believe prices are now at attractive levels. Rising employment and low interest rates also are stimulating demand. The Realtors data accounts for completed transactions of single-family homes, townhouses and condominiums and reflects closed contracts, the majority of which originated at the start of the busy spring selling season.
The pickup in sales was reflected in three of the nation’s four regions—sales were unchanged in the West—and across all types of housing, with condominiums leading the way. The Realtors data showed that sales of single-family houses rose 9.9% from last year, while condo sales jumped 14%.
Lawrence Yun, the Realtors’ chief economist, noted demand for homes is strengthening despite tight lending standards and low inventory of homes available for sale. “Without those frictions, we’d be seeing much faster recovery,” he said.
Mr. Lawler agreed, noting sales could have been even stronger if more low-priced foreclosed properties had been available for sale. “There’s been a dramatic drop in distressed and especially foreclosed property sales,” he said. In July, distressed sales accounted for 24% of all transactions, down from 33% last year. Distressed sales include foreclosures and short sales, where the bank agrees to sell the home for less than the outstanding mortgage amount.
But supply is also low because some potential sellers are reluctant to put their homes on the market now, hoping for higher prices later. July inventory fell to about 2.4 million available units, down 23.8% from a year earlier.
Some analysts believe that the low inventory of existing homes is partly fueling strong sales of new homes. Toll Brothers Inc., the nation’s largest builder of luxury homes, said Wednesday that orders for new homes surged 57% in the quarter ended July 31 from a year earlier. On Thursday, the Census Bureau will release July data showing sales of new homes across the entire economy.
Reduced supply of existing houses for sale is helping to buoy prices, although at an uneven pace. The median price was $187,300 in July, up 9.4% from a year earlier—the fifth consecutive annual gain. But the July price fell slightly from June’s $188,800 level. Month-to-month price changes are notoriously difficult to decipher. A decline could mean that overall values fell, or that more lower-priced homes were sold, pulling down the median.
“The data month to month is always a little noisy,” Mr. Yun said. “But if you compare it to one year ago, things are steadily improving,” he added.
Bill Leis, 46 years old, has been looking to trade up from a four-bedroom home in Orangevale, Calif., for the past month and a half. Mr. Leis, a manager for a local manufacturer, said he and his wife have viewed about 25 homes this summer and browsed 100 more online in their price range, $300,000 to $450,000. They made one offer but lost to a higher bidder.
“Six months ago it was much easier to walk into a home and there was much more availability in our price range,” Mr. Leis said. “Maybe I stepped in just a month too late.”
A Bright July: Existing-Home Sales Improve, Prices Continue to Rise
24 August 2012
Sales of existing homes rose in July even with constraints of affordable inventory, and the national median price is showing five consecutive months of year-over-year increases, according to the National Association of REALTORS®. Monthly sales rose in every region but the West, where inventory is very tight.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.3 percent to a seasonally adjusted annual rate of 4.47 million in July from 4.37 million in June, and are 10.4 percent above the 4.05 million-unit pace in July 2011.
Lawrence Yun, NAR chief economist, says housing affordability conditions are very good. “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates. Combined, these factors are helping to unleash a pent-up demand,” he says. “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”
NAR is asking the government to expeditiously release the foreclosed properties it owns in inventory-constrained markets.
Given population and demographic demand, Yun says existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.55 percent in July from 3.68 percent in June; the rate was 4.55 percent in July 2011; recordkeeping began in 1971.
“Fewer sales in the lower price ranges are contributing to stronger increases in the median price, but all of the home price measures now are showing positive movement and that is building confidence in the market,” Yun says. “Furthermore, the higher median price naturally means more housing contribution to economic growth.”
The national median existing-home price for all housing types was $187,300 in July, up 9.4 percent from a year ago. The last time there were five back-to-back monthly price increases from a year earlier was in January to May of 2006. The July gain was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of July sales (12 percent were foreclosures and 12 percent were short sales), down from 25 percent in June and 29 percent in July 2011.
Foreclosures sold for an average discount of 17 percent below market value in July, while short sales were discounted 15 percent.
NAR President Moe Veissi says pricing is the primary factor in determining how long homes stay on the market. “Correctly priced homes, regardless of price range, are selling quickly these days,” he says.
“Fully one-third of homes purchased in July were on the market for less than a month, and only 21 percent were on the market for six months or longer. Sellers should carefully consider a REALTOR’s® advice about marketing their homes,” Veissi says.
Total housing inventory at the end July increased 1.3 percent to 2.40 million existing homes available for sale, which represents a 6.4-month supply at the current sales pace, down from a 6.5-month supply in June. Listed inventory is 23.8 percent below a year ago when there was a 9.3-month supply.
Yun says there are distortions in housing inventory. “The total supply of housing inventory appears to be balanced in historic terms, but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers,” he says. “The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers.”
First-time buyers accounted for 34 percent of purchasers in July, up from 32 percent in June; they were also 32 percent in July 2011. Under normal conditions, entry-level buyers account for four out of 10 purchases.
All-cash sales slipped to 27 percent of transactions in July from 29 percent in June; they were 29 percent in July 2011. Investors, who account for the bulk of cash sales, purchased 16 percent of homes in July, down from 19 percent in June; they were 18 percent in July 2011.
Single-family home sales increased 2.1 percent to a seasonally adjusted annual rate of 3.98 million in July from 3.90 million in June, and are 9.9 percent above the 3.62 million-unit level in July 2011. The median existing single-family home price was $188,100 in July, up 9.6 percent from a year ago.
Existing condominium and co-op sales rose 4.3 percent to a seasonally adjusted annual rate of 490,000 in July from 470,000 in June, and are 14.0 percent higher than the 430,000-unit pace a year ago. The median existing condo price was $180,700 in July, which is 7.7 percent above July 2011.
Regionally, existing-home sales in the Northeast rose 7.4 percent to an annual level of 580,000 in July and are 13.7 percent above July 2011. The median price in the Northeast was $254,200, up 3.5 percent from a year ago.
Existing-home sales in the Midwest increased 2.0 percent in July to a pace of 1.04 million and are 16.9 percent higher than a year ago. The median price in the Midwest was $154,100, up 5.8 percent from July 2011.
In the South, existing-home sales rose 2.3 percent to an annual level of 1.77 million in July and are 8.6 percent above July 2011. The median price in the region was $162,600, up 6.6 percent from a year ago.
Existing-home sales in the West were unchanged at an annual pace of 1.08 million in July but are 5.9 percent higher than a year ago. With pronounced inventory shortages, the median price in the West was $238,600, a jump of 24.5 percent from July 2011.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.