On the heels of positive housing indicators as well as interest rate increases, existing home sales showed continued recovery in July, spiking to a year-over-year increase of 17.2%.
Interest rates and home affordability are the main drivers of the movement in home sales, according to the National Association of Relators, which compiled and reported the home sale data this week. Rates are leading to positive movement in the short term.
“Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” said NAR Chief Economist Lawrence Yun. “The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.”
Despite projections that rates will continue to rise, leading to downward pressure on affordability, other factors will push the housing recovery forward, Yun said.
“Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall,” he said.
The national median existing home sale price was $213,500 in July—13.7% higher than the median in July 2012. Investor interest in home purchases is further impacting the market, NAR reports.
“The overall percentage of cash purchases has been fairly steady, as has the share of first-time buyers, but the investor share has been trending down since February. This means more repeat buyers are using cash in this tight-credit environment,” said NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif. “With a steady decline in lower priced inventory, particularly in foreclosures, investors are finding fewer bargains to buy.”
Written by Elizabeth Ecker