Implications: Despite tight inventories and rising prices, sales of existing homes surprised to the upside in July. Sales of previously owned homes increased to a 5.59 million annual rate in July, rising for a 3rd consecutive month (and up in five of the last six) and marking the fastest pace of sales since 2007. Sales have now increased year over year for 10 consecutive months and we expect the trend to continue. All-cash buyers accounted for 23% of sales in July, down from 29% a year ago. As a result, while total sales are up a healthy 10.3% from a year ago, non-cash sales (where the buyer uses a mortgage loan) are up a more robust 19.6%. So when all-cash sales eventually bottom out, total sales will start rising at a more rapid pace. The gain in mortgage-financed sales suggests a long-overdue thaw in lending. What's interesting is that the percentage of buyers using credit has increased as the Fed tapered and then ended QE. Those predicting a housing crash without more QE were completely wrong. In fact, the looming rate hike appears to be increasing the pace of sales, as buyers look to lock in terms before borrowing costs move higher. However, tight supply and high prices continue to generate headwinds. We believe this will be remedied as more inventory comes to market in the year ahead through "on-the-fence" sellers moving to take advantage of higher prices. In other news this morning, new claims for jobless benefits rose 4,000 last week to 277,000. Continuing claims fell 16,000 to 2.25 million. Initial claims have now been below 300,000 for 24 straight weeks. Plugging these figures into our models suggest the first report on nonfarm payrolls for August will show a gain of 195,000 with healthy upward revisions in the months to follow. This positive sentiment was echoed by the Philadelphia Fed index, a measure of strength in East Coast manufacturing, which increased to 8.3 in August from 5.7 in July. All signs point to continued Plow Horse growth.
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Posted on Thursday, August 20, 2015 @ 12:24 PM
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