Existing US home sales jump 7.2% in July - Biggest monthly rise on record

Existing US home sales jump 7.2% in July - Biggest monthly rise on record
By Sarah O’Connor in Washington
Copyright The Financial Times Limited 2009
Published: August 21 2009 16:15 | Last updated: August 21 2009 16:15
http://www.ft.com/cms/s/0/c8ed9fa0-8e63-11de-87d0-00144feabdc0.html


Sales of previously owned homes in the US took their greatest leap on record as activity picked up in the once-moribund housing market.

Home sales rose 7.2 per cent in July against the previous month, according to a survey by the National Association of Realtors, the biggest monthly rise since records began in 1999. Sales have increased for four months running as buyers are wooed by government tax credits and the cheapest house prices since 2003.

A spattering of recent data have suggested the US housing market – in which prices have dropped by a third since the bubble burst in 2006 – is finally stabilising. Economists were nevertheless surprised by the size of the jump on Friday, which took sales to a seasonally adjusted annual rate of 5.2m units. They were higher than the same period last year – the first time that has happened since November 2005.

“The housing market has decisively turned for the better,” said Lawrence Yun, chief economist at NAR. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

The government is offering first-time buyers an $8,000 tax credit, which many realtors say has played a large part in spurring higher sales. Some 30 per cent of the existing home sales in July were to first-time buyers. However, that credit expires in December.

“[The numbers were] a big surprise,” said Adam York, economist at Wells Fargo. ”But the question starts to become, what happens when the tax credit goes away?” He said sales could start to fall off within the next few months unless the credit is extended.

Despite the signs of life, the housing market is far from healthy. Nearly a third of the existing-home sales were of “distressed” homes. These drives prices down, because they typically sell for between 15 and 20 per cent less than traditional homes.

Earlier this week, data from the Mortgage Bankers Association showed that more than one in every eight homeowners with a mortgage was behind on home loan payments or in some stage of foreclosure at the end of the second quarter. Unlike earlier in the crisis, the trend is now being driven by rising unemployment rather than badly underwritten loans.