In our effort to cover important trends that affect the mortgage market, FREEandCLEAR keeps a close eye on existing home sales, which is the number of previously constructed housing units that are sold in a month. The existing home sales figure is reported separately from the new home sales figure, which is the number of newly constructed homes that are sold in a month. An increase in existing home sales reflects improvement in the housing market while a decrease in existing home sales reflects a weakening of the housing market. In addition to reporting the number of housing units sold, the existing home sales report also includes information on the supply of units for sale as wells as the median and average existing home sales price.
The existing home sales report, issued on a monthly basis, includes statistics for the prior month. The report for June 2015 showed that existing home sales in May increased 5.1% on a month-over-month basis to an annualized 5.35 million units (so if you take the home sales figure for May and multiplied it by twelve), which came in at the high end of the range of industry analyst expectations. On a year-over-year basis, existing home sales increased 9.2% in May up from a 6.1% increase in April. After relatively disappointing April results, the May existing home sales figure bounced back and posted its second strongest monthly reading in the past two years. Strength was observed across all regions and sales of both single-family homes (up 5.6%) and condominiums (up 1.6%) increased on a monthly basis. Perhaps the most positive piece of news in the report is that first-time home buyers comprised 32% of sales as compared to 27% for the same period last year. First-time home buyers have been slow to enter the market due to increased lender and down payment requirements among other factors. Driven by the increase in demand, existing homes available for sale increased to 2.29 million in May, up from 2.21 in April million. The increase in inventory offset the increase in home sales with inventory relative to sales dipping slightly to 5.1 months of available supply, down from 5.2 months of supply in April 2015. The increase in demand also pushed housing prices up with the median existing home sales price rising to $228,700, representing a 7.9% increase on a year-over-year basis. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The strong existing home sales figure for May shows that the existing home sales segment is catching up with the new home sales segment to create real momentum in the mortgage and housing markets. Sales increased despite meaningful price appreciation, reflecting strong buyer demand. Additionally, the increase in interest rates over the past several months does not appear to be impeding buyer interest. The increase in home prices should also pull more inventory onto the market giving buyers more choices. Most important, first-time home buyer participation grew significantly and participation by this previously reluctant market segment will determine the strength and duration of the real estate market recovery. If you are a first-time home buyer thinking about making a move, review our First-Time Buyer Mortgage Cheat Sheet to get up to speed on the mortgage process. Buyers will also want to use our Mortgage Selector Calculator to determine what size mortgage you can afford and the mortgage program that is right for you. As always, use our INTEREST RATES function to compare rates and fees for lenders in your area as mortgage rates continue to fluctuate with market conditions.
The FREEandCLEAR Mortgage Expert