Despite a modest drop in August’s existing-home sales from the month before, September was the beneficiary of an encouraging rebound. Accordingly, existing-home sales bounced back in September to their highest annual pace of the year. In fact, a report issued by the National Association of Realtors (NAR) acknowledged that every region (except for the Midwest) experienced gains over the course of September. This development could help the economy gain traction and serve as a boon for the entire real estate industry.
Total existing-home sales represent completed transactions of single-family homes, townhomes, condos and co-ops. Existing-home sales are not to be confused with pending-home sales, as pending-home sales have yet to actually close. Having differentiated between the two, total existing home sales increased 2.4 percent to a seasonally adjusted annual rate of 5.17 million in September from 5.05 million in August. With the increase, sales are now at their highest pace of 2014, but still remain 1.7 percent below the 5.26 million-unit level from last September.
Lawrence Yun, chief economist for the NAR, says the improved demand for buying seen since the spring has carried into the fall. “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,” he said. “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.”
In addition to the increase in existing-home sales, the median existing-home price was the beneficiary of an increase as well. Subsequently, September’s median existing-home price for every housing type was approximately $209,700. That number represents a 5.6 percent increase over the same time last year. In fact, the increase represents the 31st consecutive month of year-over-year price increases.
Recent activity within the housing sector has served to decrease inventory levels. Towards the end of September, inventory levels dropped to 2.3 million (a drop of 1.3 percent). On a national level, there is a 5.3-month supply of inventory. Despite fewer homes for sale in September, unsold inventory is still 6.0 percent higher than a year ago, when there were 2.17 million existing homes available for sale.
All-cash sales in September also increased over the same period. As of August, all-cash sales represented 23 percent of the sales on a national level. During September, all–cash sales increased one percent. Despite the increase, however, all-cash sales are down 9 percent from the same time last year. Individual investors, who make up the majority of these types of transactions, accounted for 14 percent of home sales in September, up from 12 percent last month.
As per a recent report issued by Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.16 percent in September from 4.12 percent in August. Even with the increase, interest rates are 33 basis points less than they were at this time last year (4.49 percent).
“Economic instability overseas is leading to volatility in the stock market and is causing investors to seek safer bets, which will likely keep interest rates in upcoming weeks hovering near or below where they are now,” said Yun. “This is welcoming news for consumers looking to buy, although they could temporarily become more cautious by less certain economic conditions.”
Not surprisingly, first-time buyers continue to underperform, as this population represents just 29 percent of active buyers for the third consecutive month. In 17 of the last 18 months, this population has been held under 30 percent. It is believed that first-time buyers, or perhaps the whole millennial generation, hold the key to recovery. The sooner they can actively participate in the market, the sooner the economy may be able to gain traction.
Homes of the distressed nature – foreclosures and short sales – increased two percent in September, from 8 percent in August to 10 percent in September. However, despite the increase, distressed sales remain down from the 14 percent they were at last year at this time. Seven percent of September sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 14 percent below market value in September (same as in August), while short sales were discounted 14 percent (10 percent in August).
According to NAR President Steve Brown, co-owner of Irongate, Inc., Realtors in Dayton, Ohio, and fewer distressed sales is good news for appraisers, who have faced undue pressure since the downturn. “An appraisal is an important part of the home buying and selling process,” he said. “With foreclosures and short sales falling closer to average levels, appraisers will have fewer distressed sales in their list of comparables when determining home valuations.”