The National Association of Realtors (NAR) published its Existing Home Sales data for the month of August this morning. The report showed healthy growth, with sales up 7.8% over July, to an annual rate of 4.82 million. Not only was it the best pace in two years, but it exceeded economists' expectations for 4.55 million as well. On a year-over-year basis, existing home sales increased 9.3%. The news was undeniably positive.
Growth extended across geographies, as the NAR noted shortages developing in the West region and in the state of Florida. That has median home prices up higher in those regions, but they were up across the board as well.
Yearly Median Price
Lower inventory helps, but total housing inventory was reported up 2.9% in August generally. Still, at the current pace of sales, supply measured in months declined to 6.1 in August from 6.4 in July. Shadow inventory still lurks but is likely feeding through the system, freeing the market up for future growth. Distressed sales, which include foreclosures and short sales, accounted for 22% of total sales in August, which was down from July's 22% and last year's 31%. The trend here has a healthy impact on home prices and on the trepidation of some buyers.
Mortgage rates actually rose in August, which might have contributed to the sales pickup. In my view, such an effect is more likely to occur in the existing home market than in the new home market. I've theorized in the past that higher mortgage rates might spur activity, because real estate players are tuned in to what has been a steadily decreasing cost of home ownership. Many might have said, why buy now when we could get a better entry point later. However, in August, with home prices and mortgage rates rising, potential buyers had that extra push to get in. Freddie Mac (FMCC.OB) noted that the national average contracted rate for 30-year fixed rate mortgages increased to 3.6% in August, from 3.55% in July. Furthermore, the national median existing home price was 9.5% higher than a year ago.
The activity in real estate is good for the big mortgage lenders including Bank of America (BAC), Wells Fargo (WFC) and J.P. Morgan Chase (JPM). It also supports title insurers like Investor's Title (ITIC) and mortgage insurers like MGIC Investment (MTG) and Radian Group (RDN). Each is doing well today.
Company & Ticker
Bank of America
J.P. Morgan Chase
Single-family home sales grew 8.0% in August, which is supporting the shares of homebuilders today. PulteGroup (PHM), the nation's largest builder, is up 7.0%. First-time buyers decreased to 31% in August, down from 34% in July. This is another positive factor, as it signals a normalization of the real estate market. New home buyers and opportunist investors snatching up foreclosures should not be the only people buying homes in a healthy market. Still, investors purchased 18% of all homes sold in August, versus 16% in July; that was still down from 22% last year.
In conclusion, the existing home sales data offers an undeniable positive for real estate enthusiasts. The housing market stabilized months ago and home prices might not ever look back. However, I continue to warn of the near-term impact of geopolitical instability and a domestic economic downturn. There is a reason why the Federal Reserve added stimulus and why ships are filling the Persian Gulf. The housing market is in good position to survive, but it should still face an obstacle near-term. Over the long-term, I continue to warn that inflation could price many out of homeownership, with a renter nation replacing the American dream. All those things stated, I view today as opportune for real estate investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.