Existing Home Sales See Fastest Pace Yet This Year

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Home Sales-Ahead of the Bell
Nick Ut/AP
By JOSH BOAK

WASHINGTON -- U.S. homes sold in September at their fastest clip this year, a sign that the housing market is shaking off a slowdown that began in the middle of 2013.

The National Association of Realtors said Tuesday that sales of existing homes rose 2.4 percent from the previous month to a seasonally adjusted annual rate of 5.17 million. Still, the sales rate has dropped 1.7 percent over the past 12 months.

Investors have retreated from the market over the past year. Their departures are being offset by existing homeowners who are upgrading to more expensive properties or downsizing after having raised their children. First-time buyers comprised just 29 percent of sales, well below their historic average of roughly 40 percent.

The figures suggest that the sales decline that began last year has ended, although home-buying is unlikely to surge back to their historic averages.

"The worst is over, but don't expect a rapid rebound in activity or prices," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Rising prices through much of 2013, weak income growth and tighter credit standards have priced out many would-be buyers. Median home prices rose 5.6 percent over the past 12 months to $209,700.

Many homeowners are still coping with the fallout from the meltdown in home prices that began roughly seven years ago. And prices continue to recover from the depths of that housing bust, although that growth has slowed after climbing at double digit levels in many cities last year.

Median household incomes have yet to completely rebound and remain below their 2007 levels after adjusting for inflation. Limited income gains have cut into the cash flow and down payment savings needed to purchase a home. The federal regulator overseeing mortgage giants Fannie Mae and Freddie Mac is considering an option for lower down payments, so that more people can qualify for a mortgage.

Lower Rates Draw Buyers

More buyers may also return the market after the average 30-year fixed rate mortgages dropped below 4 percent last week, down more than half a percentage point from the start of 2014. Still, average rates were as low as 3.34 percent In January 2013, and there are few signs that home sales will surge any time soon.

September sales improved in the South and West compared to the prior month, ticked up slightly in the Northeast and fell in the Midwest, according to the Realtors' report. The share of purchases by investors fell to 14 percent from 19 percent a year ago.

The Realtors have projected that 4.94 million existing homes will be sold this year, down 3 percent from 5.09 million in 2013. Analysts generally associate sales of roughly 5.5 million existing homes with a healthy market.

A separate Realtors index tracking the number of signed contracts to purchase a home slipped in August, falling 1 percent compared with the prior month to 104.7. Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Construction data suggests a shift away from home ownership toward renting.

The Commerce Department reported last week that housing starts rose 6.3 percent to a seasonally adjusted annual rate of 1.017 million homes, with almost all of the gains coming from the building of apartments.

Apartment construction has surged 30.3 percent over the past 12 months, almost three times the rate of growth for single-family houses.

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Existing Home Sales See Fastest Pace Yet This Year
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.
 

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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