August Home Sales Increase to Highest Rate in 2 Years

Written by: John Landers

According to the National Association of Realtors (NAR), existing home sales for the month of August climbed to 7.8%. This translates into an annual rate of 4.82 million units compared to 4.47 million units in July. It also represents a 9.3 % increase over the 4.41 million units sold in 2011.

August existing home sales data represent the highest level of activity in more than 24 months. The last time sales reached this high was in May 2010. The tax-credit for first-time homebuyers, which expired on Apr 30, 2010, played a key role in boosting home sales during this period.

This latest NAR report continues a string of favorable news regarding the housing market recovery. However, the housing market continues to function well below the level defined as a “healthy market” by housing market economists. A “healthy” housing market should have an annual rate of 5.5 million units sold.

Sales for first-time homebuyers, a segment of the housing market closely watched by economists because of its importance in supporting the housing market recovery, dropped from 34% to 31%.

New Home Sales Encouraging

In addition to the positive news about existing home sales, the Commerce Department reports that new home sales, which include single-family homes and multifamily apartment buildings, recorded a seasonally-adjusted increased of 2.3% or an annual rate of 750,000 units in August.

Extrapolating the August data for an annual rate of production, builders should break ground for the foundations of 535,000 new homes, a 5.5% annual rate and the highest since April 2010. Apartment building construction, which demonstrates more volatility from month-to- month, decreased 4.9% in August.

After reaching a four-year high in July, applications for building permits dropped to an annual pace of 803,000. Building permit applications provide economists a glimpse into future construction activities.

Since reaching a low of 478,000 units in April 2009, the construction activity level has improved by close to 60%. In a healthy economy, construction of new homes should double that amount. Nonetheless, consistent gains in the housing market provide signs that the depressed industry may finally be on a sustainable path after making what HUD describe as a ” tumultuous downturn“ in July 2006.

The National Association of Home Builders states that although new home sales make up less than 20 percent of housing sales, each new home constructed creates nearly $90,000 in tax revenue and three jobs for an entire year.

Other Housing Industry News

The current pace of existing and new home sales should exceed the numbers reached in 2011. With existing home inventory falling, and fewer foreclosures coming to the market, home prices have started to increase. According to the S&P/Case-Shiller Home Price Index, home values declined an average of 34% since the market peaked.

A National Association of Realtors/Wells Fargo survey reveals homebuilders have a confidence level at the highest point in six years. Many builders stated they believe new home sales for the next six months will continue to show improvements.

With interest rates for a 30-year fixed-rate mortgage relatively low at 3.55 for the week ending September 13, potential homebuyers with the necessary income and credit have motivation to make a purchase.

Large down payment requirements and tighter credit underwriting standards continue to limit the number of potential homebuyers for new and existing homes.


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