Just when economists were prepared to report on the dismal state of the American real estate market for another quarter, new statistics revealed a much brighter account. Existing home sales climbed to their highest rate in two years in August, while new house construction also saw a substantial gain, indicating a brighter economic future.
Housing Market Picking Up
According to the National Association of Realtors (NAR), existing home sales rose to an annual rate of 4.82 million units, an increase of 7.8 percent from July. Existing-home sales include single-family homes, townhouses, condominiums and co-ops. This fast rate of growth exceeded predictions, especially in comparison to 2010 when there was a homebuyer tax credit available.
Home sale prices have also increased substantially from one year ago. The national median price for existing home resales climbed 9.5 percent from one year ago to $187,400. According to the NAR, the rise in prices may be attributed to the decrease in distressed sales, such as foreclosures and short sales. Those homes characteristically sell at deep discounts as typically the owner owes more on the mortgage than it is worth and the lender wants to unload the property. Distressed sales accounted for 22 percent of August transactions, well below the 31 percent figure from August 2011.
The number of first time buyers decreased from 34 percent in July to 31 percent in August. One year ago the percentage was comparable at 32 percent.
Inventory also grew nearly three percent since July to 2.47 million existing homes for sale, representing a little more than a six-month supply at the existing sales rate. One year ago, however, inventory was 18.2 percent higher.
Reasons for Improvement
NAR chief economist Lawrence Yun attributes the increase to favorable buying conditions such as lower real estate costs and the improved cost of financing. The housing market, Yun said, is steadily recovering as both the home sales and median prices have risen.
The national average interest rate for a 30-year conventional, fixed-rate mortgage increased to 3.60 percent in August, a jump of .05 percentage points from the previous month. In spite of tougher mortgage qualifying conditions, Yun said he does see the housing market strengthening.
Moe Veissi, NAR president, said he believes if most of the financially qualified buyers could secure financing, then home sales might be about 10 to 15 percent higher. The economic implications from that, he added, could create hundreds of thousands of jobs over the course of a year.
New construction is also on the rise as builders broke ground on the construction of 767,000 new homes in August. According to Bloomberg News, this was an increase of 21,000 new homes from July, the highest number of new builds since October 2008.
Economists credit less expensive properties and record low borrowing costs for attracting buyers and strengthening the market for homebuilders.
National Association of Home Builders (NAHB) chairman Barry Rutenberg, a builder from Florida, said he believes the housing market is headed in a positive direction but the road to recovery will still be long.
One of the biggest obstacles Americans are facing is what Rutenberg calls ‘unnecessarily tight’ credit conditions, which prevent a lot of builders from hiring crews and deter consumers from making a new-home purchase. The inability to commit to hiring a crew also affects the joblessness rate, which affects the economy as a whole.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- Molony, W. (2012, August 9). August Existing-Home Sales and Prices Rise. Retrieved from http://www.realtor.org/news-releases/2012/09/august-existing-home-sales-and-prices-rise
- Reuters (2012, September 20). Home Sales Rate Rose in August to a 2-Year High. Retrieved from http://www.nytimes.com/2012/09/20/business/economy/housing-starts-rose-in-august.html?_r=0
- Jamrisko, M. (2012, September 18). Confidence Among U.S. Homebuilders Improves to Six-Year High. Retrieved from http://www.bloomberg.com/news/2012-09-18/confidence-among-u-s-homebuilders-improves-to-six-year-high.html