Housing Report – All-Cash Sales Slide in August
Investors paying in cash withdrew from the market in August causing existing-home sales to slip according to the NAR. Northeast and Midwest sales increases could not sustain the heavy declines in the South and West. Total existing-home sales decreased 1.8 percent to a seasonally adjusted annual rate of 5.05 million in August from a slight downwardly-revised 5.14 million in July.
Even though the pace of sales are at it’s second highest in 2014, they remain 5.3 percent below the 5.33 million-unit level from last August, which was also the second-highest sales level of 2013. Claiming an upside to last month’s dip, NAR President Steve Brown says that a gradual decline in investor (cash-paying) activity is actually good for the market and creates more opportunity for buyers who rely on financing to purchase a home.
Even with August’s slump, the pace of overall construction starts was up 8% from a year ago, due to more single-family homes and apartments being built. Still, construction levels are below what is needed to maintain current supply and demand each year. Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, wrote, ”Overall, the weakness in this report reflects the expected giveback from the unexpected surge in activity the month before, and is not an indication of weakening underlying momentum in the sector.”
The Census Bureau reports the country’s median income is $51,939. This is 8% lower than in 2007 when adjusting for inflation. Since incomes remain below levels prior to 2007-09 recession, rental property income demand has climbed. The percent share of first-time buyers remained unchanged in August from July at 29 percent. First-time buyers have represented less than 30 percent of all buyers in 16 of the past 17 months.
Although inventory of homes for sale has been on the rise lately, if housing starts don’t pick up the situation could come back to the same tight inventory conditions. Since consumers like to view on average 10-15 homes before buying, the overall inventory needs to advance in order to really retain buyer enthusiasm and uphold home sales.
Two reasons for the lack of new home construction have been cited: difficulty of obtaining construction loans and the construction labor shortage. Construction jobs pay good salaries yet builders are having difficulty finding skilled workers.
NAR Chief economist Lawrence Yun points out that although sales fell away in August, “There was a marked decline in all-cash sales from investors. On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.” Yun also mentions that purchasing power will improve as long as job growth continues at a solid pace and wages increase, impacting the pent-up demand for buying.