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Existing-Home Sales Improvements Highlight New Construction Slump

by James F. McClister

NAR’s September existing-home sales reports marks a bounce back from August’s dip.

In August, existing-home sales took a slight dip from their peak pace in July. However, after a month of decreased activity, sales again picked up, this time surpassing July’s pace, taking a significant step in the road to sustainable normalcy, according to a new report from the National Association of Realtors.

Total existing-home sales, which include single-family homes, townhomes, condos and co-ops, rose an impressive 2.4 percent. Seasonally adjusted, the annual rate, from August to September, increased nearly 100,000 to 5.17 million.

The sales pace, though leading 2014, remains 1.7 percent below last September’s 5.26 million unit-level, but, according to The Wall Street Journal’s Nick Timiraos, is still ahead of 2009-2012.

Fewer Foreclosures, Fewer Homes

NAR’s report, while centered on the improvements to existing-home sales figures, went on to further detail the state of the overall national marketing, finding that:

  • Non-distressed existing-home sales, year-over-year, rose 3 percent, but including distressed fell 30 percent, marking the continued to decline of foreclosures.
  • For-sale inventory declined in September, but only as was seasonally expected. Factoring in the forecasted dip, for-sale inventory actually increased 1. 4 percent month-over-month. Overall inventory remains tight, but more promising than 2013 and 2012.
  • Cash sales improved slightly in September, accounting for 24 percent of transactions, but remain well below last September’s 33 percent – a reflection of the continued absence of cash investors.

Spring Success Lead to Fall Improvements

Despite its slow start, 2014 has morphed into a positive year for the housing industry, and the improvements we saw burgeoning in the spring, have continued blossoming, which leads experts, like NAR’s Chief Economist Lawrence Yun, to believe the success will be carried over into fall and eventually the new year.

“Low interest rates and price gains holding steady led to September’s healthy increase, even with investor activity remaining on par with last month’s marked decline,” Yun said. “Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices to the fact that inventory generally falls heading into the winter.”

Yun explained the absence of investors, pinning the exodus on the economic instability that’s been rampant overseas. However, as investors flee the market to seek out “safer bets,” their exit opens the way for buyers more dependent on traditional financing to find affordable, high-quality properties.

The underlining story of NAR’s report, though, is less the rising sales figures, and more the improvements compared to other portions of the market, chiefly new construction. While existing-homes sales, home price levels and delinquency and foreclosure rates have been ebbing closer and closer to pre-crisis “normal” levels, according to Trulia’s third quarter housing barometer, new construction starts remain stifled, rising only 12 percent year-over-year to 49 percent of the way to normal on the real estate company’s scale. A continued failure to satisfy the growing demand could, if left unchecked, force homes to become overpriced.

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