 | Existing Home Sales Declined 1.8% in August |
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| Posted Under: Data Watch • Home Starts • Housing |
Implications: After increasing four consecutive months, existing home sales declined 1.8% in August, falling to a 5.05 million annual rate. Home sales have been a microcosm of the Plow Horse economy. They have not boomed by any measure, but have certainly bounced off the bottom. Why haven't we seen more robust improvement? One big reason is tight credit. Despite being loaded with excess reserves from the Federal Reserve, banks are still reluctant to lend to home buyers. This is in direct contrast to the auto market, where non-bank lenders have loosened standards substantially since 2008-09 and auto sales have fully recovered. Another reason for the tepid recovery in existing home sales is a lack of inventory. After rising for seven consecutive months, inventories declined 1.7% in August. Still, inventories are 4.5% higher today than they were a year ago and more inventory should eventually help spur sales as buyers have more choices. The median price of an existing home sold is up 4.8% from a year ago and inventories are up 4.5%. In other words, recovering prices are getting more potential sellers into the market, which should lead to higher sales. An encouraging sign of continued healing in the housing market is that distressed homes (foreclosures and short sales) accounted for only 8% of August sales, down from 12% a year ago, and the lowest level since NAR started tracking distressed sales in October 2008. All-cash buyers, which averaged about 10% of total sales before the housing bust and around 30% of sales over the past few years, fell to 23% in August, the lowest level since December 2009. This means non-cash sales rose in August and may be an early sign that lenders are finally easing mortgage credit. If so, home sales could accelerate over the next year. Either way, whether existing home sales are up or down, these data should not change anyone's impression about the overall economy. Remember, existing home sales contribute almost zero to GDP. Look for better sales in the months ahead. But, unless lenders dramatically loosen standards, the increases in sales will remain tame by historical standards.
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