US Existing Home Sales Rise For The Second Time In 10 Months

The worst recession for the US housing market in over a quarter century may be coming to an end. Though new home sales and building permits fell last month, data today reveals that the far larger existing home sales gauge actually improved over the same period. According to the National Association of Realtors’ statistics, purchases of previously owned homes grew 2.0 percent to a 4.99 million annualized pace. This was modestly better than the 1.2 percent improvement expected and officially marked only the third month-over-month improvement in sales for the past 15 months. So, why would a modest improvement in existing sales signal a possible turn in the overall housing market? First of all, construction activity and new home sales naturally must tapper off as the glut in existing inventories represents a far cheaper alternative for potential homeowners and therefore must be worked off before new projects are seen as profitable. Therefore, sales of previously owned homes will be a leading indicator of sorts that will determine demand for housing overall. When inventories are worked off and extraneous factors are overcome, then development and construction will turn and boost the entire housing market.
However, while we have seen an improvement for last month’s data, this is hardly the line in the sand for the housing market. The 2.0 percent improvement is modest considering the indicator is just off of record lows. What’s more, the dominate factors in demand are actually worsening. Lending costs are rising owing to the ongoing difficulty in credit markets, foreclosures are leading to stricter lending requirements and pushing home values lower, and consumer confidence is the worst it has been in nearly three decades. - John Kicklighter, Currency Analyst for DailyFX.com