Existing-Home Sales Slightly Dip in August as Investor Activity Declines

Cash sales activities in the real estate sector declined in August causing home sales to slightly retreat during the month after four months of successive gains, according to the National Association of Realtors. Sales increases in the Northeast and Midwest were outweighed by declines in the South and West.

Lawrence Yun, NAR chief economist, says sales activity remains stronger than earlier in the year, but fell last month as investors stepped away. "There was a marked decline in all-cash sales from investors,” he said. "On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.8 percent to a seasonally adjusted annual rate of 5.05 million in August from a slight downwardly-revised 5.14 million in July. Sales are at the second-highest pace of 2014, but remain 5.3 percent below the 5.33 million-unit level from last August, which was also the second-highest sales level of 2013.

Yun adds, "As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”

The median existing-home price for all housing types in August was $219,800, which is 4.8 percent above August 2013. This marks the 30th consecutive month of year-over-year price gains.

Total housing inventory at the end of August declined 1.7 percent to 2.31 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace. However, unsold inventory is 4.5 percent higher than a year ago, when there were 2.21 million existing homes available for sale.

All-cash sales were 23 percent of transactions in August, dropping for the second consecutive month (29 percent in July) and representing the lowest overall share since December 2009 (22 percent). Individual investors, who account for many cash sales, purchased 12 percent of homes in August, down from 16 percent last month and 17 percent in August 2013. Sixty-four percent of investors paid cash in August.

NAR President Steve Brown, co-owner of Irongate, Inc., Realtors in Dayton, Ohio, says a gradual decline in investor activity, many who pay in cash, is good for the market and creates more opportunity for buyers who rely on financing to purchase a home.

On the subject of mortgage financing, Brown adds, "Realtors applaud the recent policy change to eliminate post-payment interest charges on FHA-insured single-family mortgages,” he said. "The prepayment penalty placed an unfair and unreasonable burden on consumers who already face high housing and closing costs.”

The percent share of first-time buyers remained unchanged in August from July at 29 percent. First-time buyers have represented less than 30 percent of all buyers in 16 of the past 17 months.

But the real estate segment in the U.S. remains bullish despite the slight sales decline in August. Indeed, Chinese buyers are flocking to the U.S. to buy properties. Patrick Chovanec, Silvercrest Asset Management economist, commented, “For all the talk about China being the place to be, that China is going to eat our lunch, that China’s economy is going to be the biggest and the best, it’s worth remembering that so many people in China just want to get their money out,” he said.

China accounted for the largest sales dollar volume in U.S. real estate this year, as they were inclined to purchase properties in more expensive markets like California, New York, and Washington, according to the National Association of Realtors’ 2014 Profile of International Home Buying Activity.

NAR stated that wealthy Chinese buyers bought about $22 billion worth of U.S. real estate in the 12 months ending March 2014, up from last year’s figures of $12.8 billion.

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