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Existing home sales surged in July.

Sales for single family homes including condos and co-ops increased 7.2% July over June and were 5% higher than June 2008. The seasonally adjusted annual rate of sales came in at 5.2 million. In June of 2008 the SAAR was 5 million.

Single family home sales not including condos were up 6.5% to a SAAR of 4.61 million. Condo and co-op sales were up 12.5% to a SAAR of 630,000.

Inventories rose 7.3% to 4.09 million which represents a 9.4 month supply.

Regionally, the Northeast saw sales increase 13.4%, the Midwest was up 10.9%, the South up 7.1% and the West down 1.7%.

What to make of it?

First, you can’t deny that these are strong numbers. This was the single biggest month-to-month gain since 1999. First time homebuyers and investors are providing the base for the market. The drop in sales in the West is a little puzzling and may be due more to a lack of inventory at the low end rather than a fall off in demand.

You can’t, however, discount the fact that these sales are heavily subsidized. The $8,000 tax credit for first time homebuyers and artificially low interest rates are partially responsible for driving demand. The extent to which the tax credit which is set to expire at the end of November has accelerated purchases into the current period can’t be quantified but is certainly a factor. The large increase in condo and co-op sales may have resulted from some bulk purchases of units by investors, so I think it’s premature to use this report to call a turn in that moribund sector.

In the end, this is one good data point that comes at a time of the year you would expect to get good results. Due to the distorting effects of subsidies, it probably doesn’t tell us as much about the housing market as some may propose.