Implications: More signs of improvement in the housing market. Existing home sales rose 2.3% in July and are up 10.4% from a year ago. Sales would probably be rising faster were it not for a lack of homes listed for sale. The entire increase in the number of homes for sale in July – a month when inventory normally increases – was due to multi-family units. The inventory of single-family homes was unchanged and is down 21.3% from a year ago, hovering around the lowest levels since early 2005. Although the median price slipped in July, these figures are not seasonally adjusted and prices normally decline in July. Compared to a year ago, the median price is up 9.4%, the largest gain since the peak of the housing bubble in early 2006. A couple of factors explain the rise in existing home prices. First, the lack of inventory on the market is pushing up prices while demand is picking up for housing. Second, fewer distressed sales and more sales of larger homes. In general, it still remains tough to buy a home. Despite record low mortgage rates, home buyers face very tight credit conditions. Tight credit conditions would also explain why all-cash transactions accounted for 27 percent of purchases in July versus a traditional share of about 10 percent. Those with cash are able to take advantage of home prices that are extremely low relative to fundamentals (such as rents and replacement costs); for them, it's a great time to buy. With credit conditions remaining tight, we don't expect a huge increase in home sales any time soon, but the housing market is definitely on the mend.
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