Existing home sales increased in September driven mainly by the drastic increase in first-time homebuyers, which reached the highest share of homebuyers in four years, according to a new report from the National Association of Realtors.
Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2% to a seasonally adjusted rate of 5.47 million in September. This is up from a downwardly-revised 5.3 million in August. Sales are actually at their highest pace since June, and 0.6% above last year’s 5.44 million.
“The home search over the past several months for a lot of prospective buyers, and especially for first-time buyers, took longer than usual because of the competition for the minimal amount of homes for sale,” NAR Chief Economist Lawrence Yun said.
“Most families and move-up buyers look to close before the new school year starts,” Yun said. “Their diminishing presence from the market towards the end of summer created more opportunities for aspiring first-time homeowners to buy last month.”
First-time homebuyers increased to 34% of the market share, the highest share since July 2012. It is up from 31% in August and 29% last year.
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“There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring,” Yun said. “The market fundamentals – primarily consistent job gains and affordable mortgage rates – are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”
All major regions saw an increase in closings in September, according to the report. Furthermore, distressed sales fell to a new low of 4% of market sales.
The median existing home price also increased 5.6% annually for all housing types in September to $234,200, up from $221,700 last year. This is the 55th consecutive month with year-over-year gains.
“The result of increasing housing demand coupled with limited supply is that house prices are rising, as indicated by all measures of house price appreciation,” Nationwide Chief Economist David Berson said. “While house prices are highly seasonal, compared with prices from a year ago, median existing home prices are up solidly.”
“The downside of above-average house price gains is that affordability suffers, although the other elements of housing demand are offsetting this,” Berson said. “The upside of above-average house price gains is that current homeowners, about 63% of all households, are wealthier. This is a big reason why the Federal Reserve noted that household assets and net worth have risen to all-time highs.”
Housing inventory actually increased monthly in September by 1.5% to 2.04 million homes for sale. This is still down 6.8% from last year’s 2.19 million. This marks the 16th consecutive annual decrease in inventory. Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August.
“Existing inventory in September rebounded from record lows in August, when controlling for seasonality and household formation, Trulia Chief Economist Ralph McLaughlin said. “That said, September was the second lowest on record.”
Yun expects that inventory will only continue to decline this year.
“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” he said. “Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand.”