Existing Home Sales Increased 2.6% in June

 
Implications: Housing keeps growing...Plow-Horse-like. Which, if you think about it, is a huge disappointment. Yes, existing home sales grew a strong 2.6% in June, rising to a 5.04 million annual rate. But, total sales are still 6.3% below the peak in July 2013. After an eight month slide, existing home sales have now increased for three months in a row. Why did housing slow between July 2013 and March 2014? No one knows for sure, and there are more theory's out there than analysts, but a lack of inventory was fingered by realtors themselves. Today's report suggests that is changing. Inventories are up six months in a row, including a 2.2% jump in June. They are 6.5% higher today than they were a year ago. More inventory should help spur sales in the months ahead. One key reason for growing inventories is that home prices continue to move higher (median prices for existing homes are up 4.3% from a year ago). In other words, recovering home prices are getting more potential sellers into the market, which will increase sales. Either way, whether existing home sales are up or down, these data should not change anyone's impression about the overall economy. Remember, existing home sales contribute almost zero to GDP. Also, despite recent gains in sales, credit remains tight, making it relatively hard to get a mortgage. In June, 32% of all sales were all-cash transactions. However, we do not believe higher mortgage rates are noticeably holding back sales. The US had a bubble in housing during 2003-05, when 30-year mortgage rates averaged 5.8%. Today they are 4.3%. We remain convinced that the underlying trend for housing remains upward. In other housing news this morning, the FHFA price index, for homes financed with conforming mortgages, was up 0.4% in May and is up 5.5% from a year ago. Given the rise in inventory coming on the market, expect the price gains to continue, but at a slower pace than in the past year. On the manufacturing front, the Richmond Fed index, a measure of factory sentiment in the mid-Atlantic region, rose to +7 in July from +4 in June, signaling continued gains in industrial production in July.

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Posted on Tuesday, July 22, 2014 @ 12:14 PM

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