MARKET TRENDS: Existing Home Sales at 8 Year High, Home Prices Surge Higher

The U.S. existing home sales touched the highest level in nearly 8.5 years in June, indicating a strengthening housing market. The robust home sales data that came in after a solid housing start and building permit data last week, is attributed to a firm job market, improved consumer income, and lower mortgage rates. A tightening labor market is pushing up wages and boosting housing demand. The gains in the housing sector induce optimism in the strength of the U.S. economy going forward. Existing home sales jumped 3.2% to 5.49mn units, the highest since February 2007, the National Association of Realtors said on Wednesday. The gains in housing resale exceeded market expectations of a 1.2% rise to 5.40 million units. For May, the housing sales were revised slightly down to 5.32 million units from the previously reported 5.35 million units. On a yearly basis, sales were up 9.6%.

However, housing supply remains a constraint. Tight supply has led to a surge in housing prices. The median sales price of a previously owned home was $236,400, 6.5% above the year-ago price. The House Price Index moved up by 0.4% in June, similar to a rise in May although slightly lower than the expected 0.5% increase.

The inventory of unsold homes was down to a 5 month supply from 5.1 months in May. A 6 month supply is generally considered balanced. Higher prices should prompt more homeowners to put their homes up for sale, thereby reducing inventory.

Mortgage applications showed little movement with a modest 0.1% gain on a seasonally adjusted basis for the week ending July 17, according to the Mortgage Bankers Association (MBA). MBA Refinance volume lost while MBA purchase volume gained. Refinance applications declined 1% from the previous week, while purchase applications rose by a similar 1%. Purchase applications are still 18% higher than the year ago period, but are down 5% in the last four weeks. Mortgage rates have been volatile since the start of May, but have stabilized again, leading to a lower share of adjustable-rate loan applications (ARMs), which had been rising steadily. ARMs offer lower interest rates, but are higher risk in a rising rate environment. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.23%, according to the MBA.

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