Housing Recovery Beginning as Sales Surge in July

• Sales of existing single-family homes rose for the fourth consecutive month in July, providing further evidence that the housing market has started to recover and that the recession is nearing an end. Achieving an annual rate of 5.24 million homes, the highest level since August 2007, home sales rose 7.2 percent last month. Year over year, sales of existing homes are up 5 percent, while the median price has declined 15.1 percent to $178,400. Months of inventory decreased 11 percent from a year ago to 9.4.



• The restoration of housing affordability, low mortgage interest rates and a federal tax credit relieved pent-up demand and contributed to the increase in velocity. The tax credit spurred activity among first-time buyers, who must complete transactions by the Nov. 30 expiration. The real estate industry is lobbying Congress to extend the credit. Sales of foreclosed and other distressed properties accounted for about 30 percent of transactions last month, partially generating the drop in the median price. Foreclosed and distressed homes will comprise a significant portion of single-family home sales in the coming months, as 13 percent of homeowners with a mortgage are either behind on payments or in foreclosure.


• Housing is a key driver of economic growth, and the stabilization in single-family sales over the past few months has bolstered the construction sector. Single-family home starts increased 1.7 percent in July and are 37 percent greater than the low point recorded in January. A rebound in home building will benefit the economy by creating jobs and eventually stimulating spending on housing-related and household items.


• The rebound in the housing market has yet to affect retailers. Earlier this week, both Lowe’s and Home Depot reported declines in same-store sales, following a report of lackluster performance at Wal-Mart. The weak performance by anchor retailers such as these continues to weigh on the performance of smaller merchants that occupy adjacent spaces. National shopping center vacancy rose 50 basis points to 9.5 percent in the second quarter and is still increasing in many metro areas.


• The single-family housing rebound will have a significant effect on the apartment sector. A resurgent housing sector will underpin an economic recovery that will create jobs and spur both household creation and demand for rental housing. A continuing rebound in existing single-family home sales also will remove shadow rental stock, providing traction to multi-family property owners in many markets. An increase in home sales to first-time buyers, though, will likely shrink the renter pool in many areas, creating additional vacancies and a greater need for concessions from property owners who are already facing high vacancy rates due to job losses. In the second quarter, national apartment vacancy rose 30 basis points to 7.3 percent, while concessions increased to 6.3 percent of asking rents from 5.9 percent of asking rents in the preceding quarter.