After a sluggish August, sales of preowned homes bounced back with a vengeance in September. And the changing mix of who's buying those homes is a hopeful sign for the housing market's recovery.
Existing home sales jumped 2.4 percent last month to an annualized pace of 5.17 million, according to a report released Tuesday by the National Association of Realtors (NAR). That was better than the 5.1 million pace analysts had been expecting, and a significant improvement from the 5.05 million pace in August. September marked the fastest annualized pace for existing home sales this year, according to the report.
“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,” NAR chief economist Lawrence Yun said in the release. “Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices due to the fact that inventory generally falls heading into the winter.”
The gains were broad based: Sales of existing single-family homes rose 2 percent between August and September to an annualized 4.56 million pace , and sales of condos/co-ops surged 5.2 percent to a 610,000 pace.
The median selling price for a home was $209,700 last month, compared with $218,400 in August and up 5.6 percent on a year-over-year basis. Inventory of homes available fell 1.3 percent to 2.3 million nationwide, a 5.3 months’ supply. There's “certainly no shortage of inventory, particularly as we are about to enter the slower autumn/winter selling season,” Joshua Shapiro, an economist with MFR Inc., writes in an e-mailed analysis.
Despite the cheery headlining number, some of the details within the existing home sales report were cause for worry about the stability of the overall housing recovery, which has been choppy for much of 2014. For one, the share of purchases by first-time buyers remains low by historical standards; it was unchanged at 29 percent in September. What’s more, the share of all-cash buyers and investors both increased slightly, to 24 percent and 14 percent, respectively. “With mortgage applications for home purchase not showing any signs of recovery, it is apparent that much of the juice in the existing home sales market remains centered in all-cash purchases by speculative buyers,” Mr. Shapiro writes.
Housing prices have been rising faster than most had anticipated, and higher prices combined with the Federal Reserve’s plan to take the lid off interest rates in 2015, tighter lending standards, and continued wage stagnation could price many traditional home buyers out of the market. That’s worrisome because such buyers are more indicative of a healthy recovery than the all-cash and investor purchases that characterized the early part of the market’s bounce back from the housing bust.
Still, there was plenty of cause for hope in the report. The share of distressed transactions – sales of underwater homes through foreclosures or short sales – increased slightly last month from 8 percent to 10 percent but continues to fall on an annual basis. “This downward trend in distressed transactions suggests that shadow inventory continues to be processed and should represent a smaller share of existing home sales transactions over time,” Barclay’s research economist Blerina Uruçi writes via e-mailed analysis. And despite price pressures, the share of first-time buyers is at least holding steady. “If a slowdown in housing activity were emerging, we would expect fewer sales transactions from first-time buyers and investors,” Ms. Uruci writes. “Trends in first-time homebuyers and investors have been holding up, supporting our view that the recovery in the housing market is likely to be sustained.”
Another good sign: More families are wading into the market. Last month, sales to families rose 4.4 percent year over year, while sales to investors contracted 27.6 percent over the same period. “This is an encouraging development in the housing recovery,” IHS Global Insight economists Patrick Newport and Stephanie Karol write in an e-mailed report. “While the early stage of the recovery was marked by elevated levels of investor activity, investors have been scaling back their purchases as distressed homes become harder to find. In order to keep sales moving briskly, families must step up their purchases.”