Existing-Home Sales Jump Nearly 19% From Last Year – Distressed Sales Account for 31%

Sales of previously owned homes came in 18.6% higher last month when compared to August 2010, according to data released Wednesday by the National Association of Realtors (NAR).

Completed transactions rose 7.7% on a month-over-month basis to a seasonally adjusted annual rate of 5.03 million, up from 4.67 million in July. The latest numbers far surpassed market expectations. Many analysts were forecasting a decline while others were predicting a much more modest increase, with projections for the annual rate ranging between 4.61 million and 4.80 million. The research firm IHS Global Insight issued its forecast last week ahead of NAR’s report, with a word of warning that the market should be expecting “the lowest sales pace in 10 months.” The firm’s analysts explained their rationale on declining consumer demand to buy homes, even as mortgage rates have dropped to record lows. They noted that in August, the Mortgage Bankers Association’s purchase index dropped for the fifth straight month, plunging 11.9%. “Based on this reading, and on the 1.3% drop in the Pending Home Sales Index in July, we project that existing home sales dropped 1.3% to a 4.61-million-unit annual rate in August,” IHS said. However, not everyone was caught by surprise with NAR’s report of such a sharp rise in home sales last month.
“The jump in existing home sales in August was not unexpected,” according to Galen Ward, CEO of the real estate brokerage web site Estately.com.
NAR’s chief economist Lawrence Yun says August’s report shows investors were more active in absorbing foreclosed properties. In addition to bargain hunting, he says some investors are looking to hedge against higher inflation. Investors accounted for 22% of purchase activity in August, up from 18% in July and 21% in August 2010, according to NAR’s study. Michael Simonsen, co-founder and CEO of Altos Research, says his organization is also seeing evidence of increased investor activity of late. Altos tracks market activity in real-time, and Simonsen says at that granular level he’s noticed a higher level of demand from investors continuing into the month of September, particularly in terms of all-cash transactions.

Even with investors claiming a more prominent position in today’s buyer’s market, Simonsen says the typical seasonal downturn that comes with the colder winter months will soon begin to show up in the numbers. Compared to last year at this time, which you could call the tax-credit hangover, Simonsen describes the market as “pretty stable,” but he says Altos’ analysis of recent activity indicates sales and price points are already ticking down week-over-week as you would expect at this time of year.
NAR’s study shows that the national median existing-home price for all housing types was $168,300 in August, which is 5.1% below August 2010. The fact that the median price was down more than 5 percent from a year ago at the same time sales rose nearly 19% from a year ago is a point of concern, according to Dr. Alex Villacorta, director of research and analytics at Clear Capital.
NAR says distressed properties accounted for 31% of last month’s sales transactions. That’s smaller than the 34% share reported in August of 2010, when the median price point came in higher. Villacorta says the divergence indicates buyers today are getting pretty big discounts. As more of these transactions make their way through public records, he points out that they will more commonly be used as comparables. Villacorta says there’s really nothing wrong with that – it’s just the natural function of the market, but the weight of the distress factor is certainly becoming evident in home pricing. The market’s recovery “still has a long way to go,” according to Villacorta, and that’s “reflected in the fact that you still have a large share of distressed sales and softening in price points.”