Implications: There should be no doubt the housing market is in recovery. Despite some negative effects from Hurricane Sandy in the northeast, existing home sales rose 2.1% in October and remain right near the highest level in over two years. Sales are up 10.9% from a year ago while home prices are up 11.1%. Meanwhile, the inventory of existing homes fell to 2.14 million in October from 2.17 million in September, the lowest level since December 2002! Inventories are down 22% from a year ago and the months' supply of homes (how long it would take to sell the entire inventory at the current selling rate) fell to 5.4, the lowest level since February 2006. Just a year ago, the months' supply was 7.6. In the year ahead, higher prices and sales volumes should lure more potential sellers into the market. The rise in median prices can be attributed to a couple of factors. First, a lack of inventory while demand is picking up. Second, fewer distressed sales and more sales of larger homes. In general, it still remains tougher than normal 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 29 percent of purchases in October 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 anytime soon, and we may see slightly weaker numbers over the next few months as Hurricane Sandy wreaked havoc in the Northeast, but the housing market is definitely on the mend. In other housing news this morning, the NAHB Homebuilders index, a measure of confidence, increased to 46 in November from 41 in October. Confidence among homebuilders is now the highest in six years, another sign that the recovery in housing is gaining traction.
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Posted on Monday, November 19, 2012 @ 1:37 PM
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