RBC Economics Research - Daily Economic Update

U.S. existing home sales increased more than expected in August

• Existing home sales in the US jumped 7.8% to 4.82 million annualized units in August 2012. Market expectations were for a modest increase to 4.56 million in the month.
• The median price of existing homes jumped 9.5% on a year-over-year basis as the share of distressed property sales declined.
• Homes available for sales rose by 2.9%; however, this was exceeded by the faster pace of sales leading the months’ supply of unsold homes to fall to 6.1 from 6.4 in the previous month.
• Existing home sales were up 9.3% on a year-over-year basis in August and are up 7.4% year to date. The overall improvement in the pace of sales, firming prices, shrinking housing inventories, and decreasing market share of distressed sales support our view that conditions in the US housing market are stabilizing, and we anticipate that the gradual return to normal market conditions will continue in the forecast horizon.

An annualized 4.82 million existing homes were sold in August 2012, which was a 7.8% increase from the unrevised 4.47 million annualized units sold in July. The level of sales in August was much stronger than the 4.56 million sales expected by the market and represented the highest level of sales since the homebuyers’ tax credit boosted 4.89 million reported in May 2010. The improvement in resale activity in August reflected solid increases in sales of both single-family homes (8.0%), and sales of condos and co-ops (6.1%). The gains were broad based on regional basis as well, with strong increases seen in the Northeast (8.6%), West (8.3), Midwest (7.7%), and South (7.3%). The absolute number of existing homes available for sale rose by 2.9% to 2.47 million units in August from 2.40 million units in the previous month. At the current pace of sales, it would take 6.1 months to clear this inventory of unsold homes, which is down from the reading of 6.4 seen in July and the lowest reading since January. The national median sales price of existing homes rose on a year-over-year basis for the sixth straight month in August, although the pace of increase moderated slightly to 9.5% from the 9.7% rate seen in July, which represents the largest such increase since January 2006. The strong gain in prices comes as distressed sales (foreclosures and short sales that typically sell at steep discounts) accounted for 22% of total sales, which were down from 24% in the prior month and 31% in August 2011. With the robust increase in existing home sales in August, resale activity is now up by an annualized 9.9% thus far in the third quarter of 2012 compared to the previous quarter and continues the general upward trend in the data that has been in place since activity hit two-decade lows in the second half of 2010. Moreover, existing home sales were up 9.3% on a year-over-year basis in August and are up 7.4% year to date. This overall improvement in the pace of sales, firming prices, shrinking housing inventories, and decreasing market share of distressed sales support our view that conditions in the US housing market are stabilizing, and we anticipate that the gradual return to more normal market conditions will continue during the forecast horizon. David Onyett-Jeffries, Economist, RBC Economics