Existing Home Sales Near High Last Seen in 2007

In this June 4, 2015, photo, a real estate sign is posted in front of a newly constructed luxury home in Roswell Ga. Freddie Mac reports on average U.S. mortgage rates on Thursday, June 25, 2015. (AP Photo/John Bazemore)
John Bazemore/AP
By Lucia Mutikani

WASHINGTON -- Existing home sales rose in June to their highest level in nearly 8½ years, a sign of pent-up demand that should buoy the housing market recovery and likely keep the Federal Reserve on track to raise interest rates later this year.

The National Association of Realtors said Wednesday existing home sales increased 3.2 percent to an annual rate of 5.49 million units, the highest level since February 2007.

Existing sales this year are on track to record their biggest gain in eight years, the NAR said. Economists had forecast home resales rising to a 5.4 million-unit pace last month. Sales were up 9.6 percent from a year ago.

June's solid home sales report came on the heels of last week's strong housing starts and building permits data. A tightening labor market is starting to push up wages, helping to boost demand for housing, especially among young adults.

But a tight supply of properties for sale remains a constraint. The string of strong housing reports indicate the economy remains on firmer footing despite a drop in retail sales and a slowdown in job growth last month.

The NAR said sales last month were likely boosted by buyers rushing into the market to beat rising mortgage rates, but added that strong economic fundamentals were the main driver. Those who already own a home accounted for the bulk of transactions in June, with the share of first-time buyers slipping a bit.

First-time homebuyers accounted for 30 percent of the sales, down from 32 percent in May. It was the fourth straight month that this segment remained at or near 30 percent, although it remained well below the 40 percent to 45 percent that economists and realtors say is required for a robust housing market.

The housing index rose 1.64 percent on the data, outperforming the overall stock market, which fell after Apple Inc late on Tuesday gave a fourth-quarter revenue forecast that fell short of estimates and missed some targets for iPhone sales.

Shares in D.R. Horton (DRI), the largest U.S. homebuilder, rose 2.7 percent. Lennar (LEN) was trading 2.2 percent higher.

Economists expect that housing will soften the drag on the economy from manufacturing, which continues to struggle with the lingering effects of a strong dollar and spending cuts in the energy sector, and contribute to growth this year.

Still, housing gains continue to be curbed by a shortage of properties for sale. Residential construction has accelerated but is not keeping up with household formation, which should keep homebuilders busy.

Last month, the stock of unsold homes on the market rose 0.9 percent from May to 2.3 million units. Supply was up only 0.4 percent from a year ago.

At June's sales pace, it would take 5 months to clear houses from the market, down from 5.1 months in May. A six-month supply is viewed as a healthy balance between supply and demand. With supply well below what it was during the housing bubble in 2006, the median price for a previously owned home increased 6.5 percent from a year ago to a record $236,400.

While some buyers may be forced out of the market by higher prices, homeowners are seeing their equity rise. That could lead to more houses being put on the market. Realtors and economists say insufficient equity has contributed to the tight housing inventories.

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Existing Home Sales Near High Last Seen in 2007
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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