Existing home sales surged in July according to the NAR:
For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 per cent to a seasonally adjusted annual rate1 of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 per cent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.
Lawrence Yun, NAR chief economist, said he is encouraged. “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he said.
That’s huge, and well above expectations of 2.2%.
But, as WSJ noted this morning, this number may be distorted:
Problem is, a lot of the action is in distressed properties.
A survey conducted in June of 1,500 real-estate agents sponsored by the trade publication Inside Mortgage Finance found that 36% of all sales involve “nondistressed” properties.
Of the nondistressed sales, only 31% were what the survey described as “unforced or optional.” The rest were sales by homeowners in some kind of financial or personal crisis.
“Think about that for a minute,” John Mauldin of Millennium Wave Advisors wrote this week. “Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage.” And only a third of the remaining one-third — roughly 10% of overall sales — comes from “something we could call a normal selling process.”
So existing home sales are way up, but so many are non-traditional transactions, including speculators buying up a swathe of homes and looking to rent them out.
Calculated Risk attributes much of the boom to first-time buyers–a surge that he thinks will soon end:
First-time home buyer activity has boosted existing home sales, and will continue to boost existing home sales (reported at close of escrow) through November.
This level of first-time buyers is completely unsustainable – even if another tax credit is enacted. There was significant pent up demand from potential first-time buyers who were priced out of the market in 2004-2006, and then were afraid to buy as prices fell. But demand from these buyers will wane. (Like “cash-for-clunkers” demand waned).
This doesn’t help the mid-to-high priced market because a large percentage of sales are distressed (REOs or short sales), and there is no seller to move up.
Expect a surge in existing home sales (and some new home sales) over the next few months. Expect all kinds of reports that the bottom has been reached. (Like the ING report via CNBC) Still, today’s number is so far above estimates, that we may yet be looking at a green shoot.
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