Existing-home sales not reflective of current market
Investor influence remains high
Existing-home sales flourished in July, with the median price continuing to see double-digit year-over-year increases, according to data from the National Association of Realtors.
Total existing-home sales — which include single-family homes, townhomes, condominiums and co-ops — rose 6.5% in July to a seasonally adjusted annual rate of 5.39 million units, up from a downwardly revised 5.06 million in June. Year-over-year, existing-home sales rose 17.2% from the 4.50 million-unit pace set in July 2012.
The impressive growth in existing-home sales would seem to suggest a continually improving housing market. But David Berson, chief economist at Nationwide, believes it may be premature to assume this report is directly correlated with the current housing market.
Existing-home sales data tends to lag what’s happening in the market to some extent because the data takes into account when a buyer actually closes on the home.
The lag time for existing-home sales is typically 60-90 days, said Berson, meaning the report on July sales is actually more reflective of the housing market between April and June, when mortgage rates were significantly lower than they are today.
The latest report reflects ongoing concerns about interest rate fluctuations, Berson noted.
"The increase in existing-home sales in July suggests that the rise in mortgage rates prompted some buyers to rush through with a home sale before rates became higher still. This stimulatory effect will only be temporary," analysts at Capital Economics added.
“Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines," said NAR Chief Economist Lawrence Yun. "The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.”
Berson believes Friday’s new home sales report will be more reflective of the current housing market. Certainly new and existing homes compete with each other, he noted.
“When existing-home sales go up, new home sales tend to go up,” said Berson.
Quicken Loans Chief Economist Bob Walters believes existing-home sales will continue their ascension in the months ahead. "I think it will began to accelerate, seeing an increasing urgency on behalf of homebuyers," he said. Walters noted that as home prices and rates continue to go higher, a lot of people who've been interested in being in the market will begin coming off the sidelines.
With the national median existing-home price for all housing types at $213,500 in July, up 13.7% year-over-year, many buyers are looking to buy before prices go up even more. “Because home prices had fallen by so much, there were probably a small portion of people out there interested in buying a home, but they didn’t want to if prices were still going to go down,” explained Berson.
But NAR's chief economist Lawrence Yun said higher home prices are unlikely to impact the market's recovery moving forward. "Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.”
The other interesting thing to note in the July existing-home sales report is that the share of all-cash purchases, which was down a bit, but still a very high number. All-cash sales made up 31% of transactions in July, unchanged from June, but up 27% from July 2012.
"This continues to show that investors are a substantial part of the market," Berson concluded.