The increase in existing home sales in September took sales activity to a 12-month high, and with falling mortgage interest rates and what some see as an improving labor market, Capital Economics is getting bullish on housing.

“The (National Association of Realtors) measure of existing single-family and condo sales increased by 2.4% m/m in September to 5.17m annualized, more than reversing the previous month’s 1.8% m/m decline,” writes Capital Economics property economist Paul Diggle in a client note.

September marked the highest level of existing home sales in a year.

“Existing home sales rose furthest in the West, by 7.1% m/m, but fell in the Midwest, by 5.6% m/m. The decline in sales activity in the Midwest may be the result of lower global energy prices which will have dampened activity in the shale sector, a key driver of housing market activity in the region,” Diggle writes.

Digging below the headline numbers, the breakdown of existing home sales by type showed that all-cash and investment sales rose to 38% of sales in September, up from 35% in August, according to his report.

“Put another way, the number of all-cash and investment sales increased by 11% m/m, while sales to first-time and repeat buyers fell by 2%. The concern is that the pool of all-cash and investment buyers will dry up at some point,” he cautions.

Diggle also notes that low mortgage interest rates – the MBA’s measure of 30-year rates hit an 18-month low of 4.2% last week – loosening mortgage credit conditions and job creation well in excess of 200,000 per month argue for an increase in first-time and repeat buyer numbers before too long.

“The seasonally-adjusted inventory of existing homes for sale fell for the third consecutive month in September, by 1.3% m/m to 2.12m. Alongside the strengthening in sales, that saw the months’ supply of unsold existing stock hit a 12-month low of 4.9. At the margins, that’s a reason to think that the recent moderation in house price growth will soon come to an end – although a return to the double-digit gains of last year is not on the cards,” he writes.