August's Bounce in Existing-Home Sales: Scant Progress

What should investors make of August's better-than-expected 7.6% rise in existing-home sales? Not too much. Even though the month's 4.13 million-unit annual rate is an improvement from July's ugly 27.2% plunge, it's still the second-lowest month for existing-home sales in the past 15 years.

A Bloomberg survey had expected the August figure to rise to a 4.05 million-unit rate, from July's 3.84 million, which stands as that 15-year low. Existing-home sales totaled a 5.26-million unit annual rate in June.

And although sales are down 19% from the 5.10 million-unit rate in August 2009, that's better than the 25.5% year-over-year decline registered in July.

Encouraging Points

Home inventories also registered modest improvement in August, decreasing 0.6% to 3.98 million units, or an 11.6-month supply at the current sales pace. That's down from a 12.5-month supply in July. A healthy resale market generally has a three- to five-month supply of homes.

And in another encouraging data point, sales rose in all four regions in August. Sales were 13.8% higher in the West, 7.9% higher in the Northeast and 5% in the Midwest and South.

NAR Chief Economist Lawrence Yun sensed the modest improvement implied by the August sales data but also underscored that existing-homes sales aren't where they should be. "The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty," he said in a statement.

"Home values have shown stabilizing trends over the past year, even as the economy shed millions of jobs, because of the home buyer tax credit stimulus," Yun added. "Now that the economy is adding some jobs, the housing market needs to steadily improve and eventually stand on its own."

Prices Rose Most in the Northeast

The median sales price for all types of housing was $178,600 in August, up 0.8% from a year ago. The figure for a single-family home was $179,300, up 1.2% from a year ago. By region, median single-family home prices were up in the Northeast to $260,300, 7.6% higher than a year ago; up in the West to $214,700, 2.5% higher; up in the Midwest to $149,600, 0.4% higher; and down in the South to $155,000, 1.5% lower.

The median sales price for a condominium was $174,000 in August, down 2.8% from a year ago.

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The latest existing-home sales report is a small step forward for the housing market. Still, investors should keep in mind that existing-home sales will have to shoulder a greater portion of the "GDP growth burden" regarding the housing sector during the current expansion. That's because new-home sales are at/near all-time lows, and builders are reluctant to add to supply amid horrible new-home demand.

So, existing homes will have to make up for likely underperformance in new-home sales, if housing is going to play a strong role in U.S. economic growth, as it historically has. Viewed in that context, August's rise hardly warrants a chorus of Happy Days Are Here Again, but it is a start.