Existing home sales in the USjumped 7.7% in August to a six-month high of 5.03 million annualized units following the unrevised 3.5% decrease to 4.67 million in July. The increase in resale activity in August beat market expectations of a 1.7% increase in the pace of sales to an annualized 4.75 million units. The release indicated that home prices fell again in August, with the median existing home price down 5.1% on a year-over-year basis in the month, although this is a slight moderation in the pace of decline compared to the 6.0% annual decline seen in July.
The rise in existing home sales in the month was seen in both the single-family, and condo and co-op components, with the monthly strength most evident in the former. Single-family home sales jumped 8.5% to 4.47 million annualized units in August, representing the fastest pace of sales since January. Sales of condos and co-ops rose a more modest 1.8% to 560,000 annualized units in the month. The pace of existing home sales increased across the country, led by an 18.3% jump in the West, while the South (5.4%), the Midwest(3.8%), and the Northeast (2.7%) saw modest gains.
The national median sales price of existing homes fell 5.1% on a year-over-year basis in August, the ninth consecutive such decline, as distressed sales (foreclosures and short sales that generally sell at steep discounts) accounted for 31% of total sales, up from 29% in the prior month, but down from 34% in August 2010. The absolute number of existing homes available for sale fell for the second straight month, down 3.0% to 3.58 million units in August. At the current pace of sales, it would take 8.5 months to clear this inventory of unsold homes, down sharply from 9.5 months in July but still well above pre-recession levels of around five months.
While the increase in existing home sales in August is a positive development, the flow of housing market data in general shows that, in the words of the Federal Reserve, there is “continued weakness in the housing sector” and overall activity “remains depressed.” Despite historically low mortgage interest rates and attractive home prices that have helped to make affordability conditions the “best in a generation,” housing demand remains constrained due to reportedly tight credit, persistently poor labour market conditions and heightened uncertainty that is weighing on consumer confidence while foreclosures have resulted in an ample supply. Fed Chairman Bernanke recently cited the weakness in the housing sector as a key reason “for the frustratingly slow pace of recovery,” and we expect that the Federal Open Market Committee will later today indicate its willingness to provide additional stimulus in an effort to support a sustained recovery in the residential real estate market.
Reference*David Onyett-Jeffries, Economist, RBC Economics