US Existing Home Sales Rise Unexpectedly in August to Six-and-a-Half-Year High

* Existing home sales in the US rose to 5.48 million annualized units in August from July’s unrevised 5.39 million sales. Market expectations going into the report were for sales to decline to 5.25 million annualized units.
* The month’s supply of unsold homes declined to a five-month low of 4.9 months in August, indicating tight supply conditions in the resale market.
* The median price of existing homes increased 14.7% year over year, the fastest pace of annual price growth since October 2005.

There were 5.48 million existing homes sold in the US in August on a seasonally adjusted and annualized basis, a 1.7% increase from the unrevised 5.39 million annualized units sold in July. The level of sales in August was stronger than the 5.25 million sales expected by the market going into the report and represents the highest level of existing home sales since February 2007. The rise in resale activity in August reflected increases in sales of both single-family homes (+1.7% to a six-and–a-half-year high of 4.84 million annualized units) and co-ops and condo sales (+1.6% to 0.64 million, the highest level since May 2007). On a regional basis, increased sales were recorded in the South (+3.8%) and Midwest (+3.1%) while sales were steady in the Northeast and declined in the West (-2.3%).

The number of existing homes available for sale edged up by 0.4% to a one-year high of 2.25 million units in August. At the current pace of sales, it would take 4.9 months to clear this inventory of unsold homes, down from 5.0 in July and well below the long-term average of 6.4 months. With inventories of existing homes historically tight and the share of distressed sales at its lowest level since tracking began in October 2008 (foreclosures and short sales represented 12% of total sales in August, down from 15% in July and 23% in August 2012), home prices have continue to move higher with the median price of US$212,100 in August, representing a 14.7% increase over the year-ago level. This marked the fastest pace of annual price growth since October 2005.

The better-than-expected level of resale activity in the residential real estate market in August is encouraging as it points to a continued improvement in underlying demand for housing despite the increase in mortgage rates seen since May (existing home sales are counted at the time of closing, which typically comes one to three months after the contract of sale is signed; thus today’s data largely reflect purchases initiated after mortgage rates increased). Indications of sustained upward momentum in the housing market (including the reports from earlier this week of an increase in starts and elevated homebuilders’ confidence) are consistent with our view that improving labour market conditions and a concurrent rise in personal incomes will more than offset the drag from the modest deterioration in housing affordability and continue to support increased levels of activity from the household sector.



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