Existing Homes Sales Jump 7.7 Percent In August

While the U.S. housing market remains beaten down, it showed a distinct heartbeat in August. Sales of existing homes rose 7.7 percent over July and was up a healthy 18.6 percent from August 2010, according to the National Association of Realtors (NAR).

The feat was all the more impressive when you consider that tightening credit restrictions continued and the Eastern seaboard was visited by Hurricane Irene during the month.

“Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” said NAR chief economist Lawrence Yun. “Investors were more active in absorbing foreclosed properties. In additional to bargain hunting, some investors are in the market to hedge against higher inflation.”

Investors remain active

Investors accounted for 22 percent of purchase activity in August, up from 18 percent in July and 21 percent in August 2010. First-time buyers purchased 32 percent of homes in August, unchanged from July; they were 31 percent in August 2010.

Again in August, many buyers bypassed the banks. All-cash sales accounted for 29 percent of transactions in August, unchanged from July; they were 28 percent in August 2010. Investors accounted for the bulk of cash purchases, the trade group said.

“We had some disruptions from Hurricane Irene in the closing weekend of August, when many sales normally are finalized, along the Eastern seaboard and in New England,” Yun said. “As a result, the Northeast saw the smallest sales gain in August, and some general impact is expected in September with widespread flooding from Tropical Storm Lee. Aberrations in housing data are possible over the next couple months as markets recover from disrupted closings and storm damage.”

Flood insurance program expiring

Yun said an extremely important issue currently is the renewal and availability of the National Flood Insurance Program, scheduled to expire at the end of this month.

“About one out of 10 homes in this country need flood insurance to get a mortgage, and we would see significant negative market impacts without it,” he said.

Also, for those who can qualify under ever-tighter underwriting standards, interest remains near all-time lows. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.27 percent in August, down from 4.55 percent in July; the rate was 4.43 percent in August 2010. Last week, Freddie Mac reported the 30-year fixed rate fell to a record low 4.09 percent.

If more people qualified for mortgages and appraisals came in at anticipated levels, it's apparent August sales would have been much higher. Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price – were reported by 18 percent of NAR members in August, up from 16 percent July and 9 percent in August 2010.