Existing Home Sales Post Biggest Increase in 10 Years

Sales of existing homes rose sharply in July, rising 7.2 percent in the biggest monthly increase in at least 10 years, according to figures released today by the National Association of Realtors (NAR).

It was the fourth consecutive monthly increase in existing home sales reported by the NAR, the first time that has happened in five years. The annual rate of 5.24 million units sold also represents an increase of a quarter million over the pace set one year before in July 2008, the first time monthly sales have exceeded the rate of the previous year since November 2005.

"The housing market has decisively turned for the better," said Lawrence Yun, NAR chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales."

The median sale prices for homes of all types was $178,400, down slightly from June's level of $182,000, and 15.1 percent below the July 2008 median price of $210,100. The survey includes sales of existing single-family homes, townhouses, condominiums and co-ops.

Foreclosures, delinquencies still growing

The report provides further evidence that some portions of the housing market are beginning to turn around, even though it is clear that mortgage delinquencies and foreclosures will continue to a drag on the economy for some time to come. A record 13.16 percent, or more than one home mortgage in eight, was either past due or in foreclosure in the second quarter of 2009, according to figures released Thursday by the Mortgage Bankers Association.

The percentage of mortgage loans in foreclosure was 4.30 percent, or roughly one home in 23, an increase of 45 basis points from the first portion of the year. The percentage of homes at least one month delinquent was 9.24 percent, also a record.

The increase in foreclosures was driven by a rise in prime fixed-rate mortgage foreclosures, which now account for one in three foreclosure starts. Meanwhile, new foreclosures on adjustable rate mortgages declined, suggesting that unemployment is replacing mortgage resets as the driving factor in foreclosures.

California, Florida, Arizona and Nevada continued to account for nearly half of all U.S. foreclosures, although their combined 44 percent of the total was down slightly from the 46 percent they accounted for in the first quarter of the year.

Turnaround linked to employment picture

With unemployment continuing to rise, although at a slower pace than earlier this year, it is expected that foreclosures will continue to result in an excess supply of existing homes on the market and exert downward pressure on housing prices overall.

"It is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves," said Jay Brinkmann, MBA chief economist. "In addition, in some areas where a number of borrowers have mortgages that are larger than the current value of their homes, any life events such a divorce or loss of a job are likely to translate into foreclosures until prices in those areas recover, not just flatten."

Many economists do not expect employment to begin to rebound for another year or more. Although there have been numerous signs that the current recession is ending, including another monthly increase in Leading Economic Indicators reported this week by the Conference Board, employment tends to trail other parts of the economy in a recovery and typically does not begin to rise until employers have enough confidence in a growing economy to resume hiring.