Tax Credit at Work: Existing Home Sales Continue to Improve

Great news for the housing market gave equities a boost after a week of up and downs. Sales of Existing Homes in July soared by 7.2% in the month, pushing the annualized pace of sales to 5.420 million, the highest rate in almost two years and the first time past the 5 million mark in nine months.

July marks the fourth straight month of increases for Existing Home Sales, including a 3.6% gain in June. Markets were only looking for a 2.5% advance in July. Compared to last year, total sales are up 5% ― the first annual gain in 43 months.

“Let's credit the tax credit for doing what it was supposed to do . . . give a strong incentive to allow buyers to cross the threshold to homeownership,” said Jennifer Lee from BMO Capital Markets, who said the report “trounced expectations.”

Single-family home sales climbed 6.5% in the month, while condo sales jumped 12.5%.

Sales were mixed regionally. The Northeast led the way with a 13.4% gain, while the Midwest saw a double-digit gain of 10.9%, and the South saw sales climb 7.1%. Only in the West were sales down, but the decline was a somewhat moderate 1.7%.

According to the National Association of Realtors, who published the report, nearly a third of sales were from distressed homes, a similar share to sales in June

Inventories remain at a still-high 9.4 months, meaning it would 9.4 months at the current sales pace to clear overhang. A healthy-market ratio is 6 months.

“The inventory of existing homes on the market remains roughly twice as large as it was at the end of 2002, although it is down nearly 11% from its peak in July of 2008,” said Joseph LaVorgna from Deutsche Bank.

Overall, TD’s Ian Pollick called the report “very strong,” noting it “speaks to the recent improvement in the U.S. housing market.” 

With prices down 23% from their peak, sales should be expected to continue at a brisk pace, especially as the government tax credit for first-time homebuyers expires at the end of November.