Existing home sales hit record, but short-term outlook softens
Existing-home sales rose 5.8% in August to a seasonally adjusted annual rate of 5.50 million units from an upwardly revised level of 5.20 million units in July, the trade group said. Last month's sales activity remained 5% ahead of the 5.24-million unit pace of August 2000. The previous record, which was set in June 1999, was an annual rate of 5.45 million units.
Dr. David Lereah, NAR's chief economist, described the August report as ironic. “Like everything else, this bright spot in the American economy has been eclipsed by the events of Sept. 11,” he said. “After setting a new record for existing-home sales in August, our internal tracking shows a downturn following the attack on America, and there will be some natural pullback from big-ticket purchases in the months ahead given uncertainty over the future.”
NAR now expects home resale activity to average below the 5.0 million-unit rate through the first quarter of 2002.
“The negative effect should be temporary because the fundamentals of the U.S. economy remain favorable, and we should experience a delayed rebound,” Lereah added. “Assuming we're successful in preventing additional attacks, the rebound will be postponed until next year as we work toward market stabilization.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.95% in August, down from 7.13% in July; it was 8.03% in August 2000.
“We now expect mortgage interest rates to move even lower to about 6.7% in the fourth quarter, which basically would match a record low,” NAR President Richard A. Mendenhall said. “This is supporting the housing market and will be especially helpful to first-time home buyers.”
Housing inventory levels at the end of August rose 8.5% from July to 2.18 million existing homes available for sale, which represents a 4.8-month supply at the current sales pace. “The supply of homes on the market remains lower than historic norms, which is contributing to stronger price appreciation in many areas,” Lereah noted.
“In addition to very low interest rates, we continue to experience strong household formation which is fueling the entry-level market. Once we work through the impact of job cuts, and the economy stabilizes, we should see a very nice rebound in both housing and the general economy.”
Lereah also predicted that the government stimulus package, insurance payouts and easy monetary policy should contribute to consumer confidence. For all of this year, Lereah expects 5.19 million existing home sales, up 1.3% from 2000, but dipping below the 5-million annual rate before rising again next year for a total of 5.17 million in 2002. For this year, he expects 898,000 new home sales – which would be a new record – and then a rise to 902,000 units in 2002. The forecast for housing starts is 1.57 million units in 2001, and 1.53 million next year.
NAR expects U.S. economic growth, as measured by the Gross Domestic Product (GDP), to contract by 0.6% in the third quarter with a continued decline of 0.2% in the fourth quarter. GDP should then rise gradually to a 3.4% growth rate by the second quarter of 2002. Consumer price inflation for this year is expected to come in at 3.1%, and then dip to 2.7% in 2002.
Regionally, home resale activity in the West rose 9.8% from July to an annual rate of 1.46 million units in August; they were 3.5% higher than August 2000. The median existing-home price in the West was $201,800, up 6.7% from the same month a year earlier.
Existing-home sales in the Northeast rose 6.2% in August to a pace of 690,000 units; the sales rate was 3.0% above August 2000. The median existing-home price in the Northeast was $154,100, up 10.6% from a year ago. The existing-home sales pace in the South rose 5.3% in August to an annual rate of 2.18 million units, and were 8.5% above August 2000.
The median price of an existing home in the South was $145,100, which was 10.4% higher than August 2000. In the Midwest, homes were reselling at an annual rate of 1.17 million units in August, up 2.6% from July, and were 1.7% above August 2000.