Existing home sales increased in July to their highest annual pace of the year, but are down 4.3% year-over-year, and the ongoing decline in distressed sales reached an important milestone, according to the National Association of Realtors.
Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, are at the highest pace of 2014 and have risen four consecutive months, but remain 4.3% below the 5.38 million-unit level from last July, which was the peak of 2013.
Month-over-month, existing home sales rose 2.4% to a seasonally adjusted annual rate of 5.15 million in July from a slight downwardly-revised 5.03 million in June. The gains were led primarily by sales in the South and the West regions.
This comes as mortgage rates hit their lowest point for the year, according to Freddie Mac.
Today's report is encouraging for the housing market even if it shows the housing slump is still going strong. Next up for this sector is the new home sales report on Aug. 25. Homebuilders are probably happy to see the rise in demand for existing home sales but they want to see it move to new homes.
Lawrence Yun, NAR chief economist, says sales momentum is slowly building behind stronger job growth and improving inventory conditions.
“The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market,” he said. “More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise.”
Yun does warn that affordability is likely to decline in upcoming years.
“Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” he said.
The median existing-home price for all housing types in July was $222,900, which is 4.9% above July 2013. This marks the 29th consecutive month of year-over-year price gains.
Total housing inventory at the end of July rose 3.5% to 2.37 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace. Unsold inventory is 5.8% higher than a year ago, when there were 2.24 million existing homes available for sale.
“The numbers are showing up fashionably late for home buying season, but recent data suggests the housing market is recovering from the slump of early 2014,” said Quicken Loans Vice President Bill Banfield. “This marks the fourth-straight month of increases in existing sales, approaching levels we saw a year ago. Pair this with slowing but sustainable gains in home prices, historically low rates and inventory continually approaching an ideal supply level, and housing finally appears to be gaining solid footing.”
Distressed homes – foreclosures and short sales – accounted for 9% of July sales, down from 15% a year ago and the first time they were in the single-digits since NAR started tracking the category in October 2008.
Six percent of July sales were foreclosures and 3% were short sales. Foreclosures sold for an average discount of 20% below market value in July, while short sales were discounted 14%.
Yun says the deepest housing wounds suffered during the Great Recession are beginning to fully heal.
“To put it in perspective, distressed sales represented an average of 36% of sales during all of 2009,” he said. “Fast-forward to today and rising home values are helping owners recover equity and strong job creation are assisting those who may have fallen behind on their mortgage due to unemployment or underemployment.”
All-cash sales in July were 29% of transactions, down from 32% in June and representing the lowest overall share since January 2013 (28%). Individual investors, who account for many cash sales, purchased 16% of homes in July, unchanged from last month and July 2013. Sixty-nine% of investors paid cash in July.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage fell for the third consecutive month to 4.13% in July from 4.16% in June, and remains the lowest rate since June 2013 (4.07%).
The percent share of first-time buyers in July rose slightly for the second straight month to 29% (28% in June), but remain historically low.
NAR President Steve Brown, co-owner of Irongate Realtors in Dayton, Ohio, says the new credit scoring calculation recently announced by Fair Isaac Corp., or FICO, will improve access to homeownership.
“NAR supports efforts to broaden access to credit for qualified homebuyers, especially those who have been shut out of the housing market or forced to pay higher interest rates because of flawed credit scores,” he said. “A solid credit score is necessary to keep borrowing costs down.”
The median time on market for all homes was 48 days in July, up from 44 days in June; it was 42 days on market in July 2013. Short sales were on the market for a median of 93 days in July, while foreclosures sold in 58 days and non-distressed homes typically took 45 days. Forty percent of homes sold in July were on the market for less than a month.
Single-family home sales increased 2.7% to a seasonally adjusted annual rate of 4.55 million in July from 4.43 million in June, but remain 4.2% below the 4.75 million pace a year ago. The median existing single-family home price was $223,900 in July, up 5.1% from July 2013.
Existing condominium and co-op sales remained unchanged in July from June at an annual rate of 600,000 units, and are 4.8% below the 630,000 unit pace a year ago. The median existing condo price was $215,000 in July, which is 3.3% higher than a year ago.
Regionally, July existing home sales in the Northeast stayed at an annual rate of 640,000 for the second consecutive month and are now 9.9% below a year ago. The median price in the Northeast was $273,600, an increase of 2.4% from July 2013.
In the Midwest, existing home sales increased 1.7% to an annual level of 1.22 million in July, but remain 4.7% below July 2013. The median price in the Midwest was $175,200, up 4.1% from a year ago.
Existing-home sales in the South rose 3.4% to an annual rate of 2.12 million in July, and are now up slightly (0.5%) from July 2013. The median price in the South was $192,000 up 5.0% from a year ago.
Existing home sales in the West climbed 2.6% to an annual rate of 1.17 million in July, but remain 8.6% below a year ago. The median price in the West was $304,100, which is 6.3% above July 2013.