© Reuters. A home for sale sign within the Washington DC Beltway in Annandale Virginia
By Lucia Mutikani
WASHINGTON (Reuters) – U.S. home sales soared to nearly 14 years high in August as the property market continued to outperform the economy, but record home prices could drive first-time buyers out of the market.
The National Association of Realtors report confirmed that home sales had rebounded from the slump when the economy nearly stalled as stores closed in mid-March to slow the spread of COVID-19.
Housing demand is fueled by record-low mortgage rates and a pandemic-induced migration to suburbs and sparse areas in search of more spacious accommodations as many people work from home. Federal Reserve Chairman Jerome Powell told a Congressional panel on Tuesday that the economy has "improved significantly" since the February recession hit, although the path ahead remains uncertain.
"The real estate market has continued its remarkable recovery amid an otherwise strained economy that has been ravaged by the pandemic," said John Pataky, executive vice president of TIAA Bank in Jacksonville, Florida.
"We should, however, remain paranoid about the sustainability of the sale. The lack of housing is putting upward pressure on house prices that threatens to undermine the benefits of low mortgage rates."
Existing home sales rose 2.4% last month to a seasonally adjusted annual rate of 6 million units, the highest since December 2006. The increase in home sales in August, which was three months in a row, was in line with expectations Economists.
The median price for existing homes rose 11.4% year over year to a record $ 310,600 in August. Revenue last month was concentrated in the range of $ 250,000 to $ 1 million and above, with transactions falling sharply below the $ 250,000 band.
Existing home sales, which make up the bulk of US home sales, were up 10.5% year over year in August.
The PHLX real estate index rose more than 1.5%, outperforming a largely firmer US stock market. The dollar rose against a basket of currencies. US Treasury bond prices had fallen.
Although almost 30 million people have received unemployment benefits due to the coronavirus crisis, unemployment has disproportionately hit low-wage workers in the service sector, who are usually young and renters.
Home sales increased in all four regions last month. The demand for housing has shifted towards single family homes as people sought larger spaces for home offices and schooling. The NAR believes that migration from city centers to suburbs could be permanent even if a vaccine for respiratory diseases is developed.
Single-family home sales rose 1.7% in August. While multi-family home sales grew 8.6%, they accounted for 10.5% of sales, compared to 12%, which is considered the norm for the housing market.
The 30-year fixed mortgage rate averages 2.87%, according to the mortgage finance agency Freddie Mac (OTC :). An ongoing shortage of homes for sale and double-digit growth in house price inflation in August are red flags.
The shortage is concentrated in the single-family home segment. Although single-family home builder confidence hit a record high this month and permits to build single-family homes rose to their highest level since May 2007 in August, supply pressures are unlikely to ease as the fires in the west skyrocketed wood prices have driven.
There were 1.49 million homes in August, down 18.6% year over year. At the sales pace in August, it would take 3.0 months to run out of current inventory, up from 3.1 months in July and 4.0 months a year ago.
A supply of six to seven months is considered a healthy balance between supply and demand.
"The 11% rise in prices is well above income growth and threatens overall affordability, especially for first-time buyers," said Joel Kan, an economist with the Mortgage Bankers Association in Washington. "It is clear that more inventory is needed to keep house prices from rising too quickly."
Homes for sale typically stayed in the market for 22 days last month, compared with 31 days in August 2019. Sixty-nine percent of homes sold in August had been on the market for less than a month. According to NAR, real estate agents reported several listings for homes in the market.
First time buyers accounted for 33% of sales in August, down from 34% in July 2020, but down from 31% in August 2019. Individual investors or second home buyers, who account for a lot of cash sales, bought 14% of homes in August. Cash sales accounted for 18% of transactions.