The Market Gives Us More of What We Like

A week ago we wondered aloud if housing was set to lead the economy for the rest of 2015. Data this week suggest it's certainly moving in that direction.

After smoldering for far too long, existing home sales have taken fire. Sales were up a blistering 3.2% to 5.49-million units on an annualized rate in June. That's on top of May sales, which were revised up 4.5%. We haven't seen this monthly rate of sales since February 2007.

What's more, we haven't seen existing homes fetch what they are fetching in some time. The median price of an existing home surged 3.3% in June to hit $236,000, which surpasses the July 2006 peak.

This is really quite extraordinary, if not logic defying. When prices surge, demand usually abates (more so, though, with lesser consumer goods than with homes). That's hardly been the case. People obviously want a home, and they want it now. At the current sales pace, inventory has dropped to 5.0 months from 5.1 months. Supply isn't getting ahead of demand.

Sale composition is also contributing to rising prices. What was once a surfeit is now nearly a dearth: Distressed sales tumbled to 8% of existing home sales in June, down from 10% in May. This time last year, 11% of sales were distressed. Considering where we were four years ago, the distressed-home market has made a remarkable recovery.

Veteran readers might remember that four years ago we were anticipating the turn of fortune that we are witnessing today. To be sure, we didn't expect the turn to be so sharp and so robust, but we did anticipate it. There was no shortage of exhortations on our part for people to seriously look at housing, and then get in. There were fewer takers than there are today, though prices in most markets were considerably cheaper.

To be sure, the world was different in 2011: Credit underwriting standards were tighter, the economy was less surefooted, household finances were shakier, and many potential buyers were fearful the nascent recovery would backslide. Today, economic conditions have improved all around, but of course, that's reflected in higher prices. The takeaway is that if you can afford (and stomach) being assertive when most are timid, it frequently pays off being assertive in the long run.

This isn't to say we don't like today's market; we do. Rising home sales is a sign of improved market liquidity. Lack of liquidity also kept many potential buyers on the sidelines a few years ago. When you buy a home today you are reasonably assured you can sell it within a reasonable time at a reasonable price. That's a huge plus.

Information provided by Jessica Regan.

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