The National Association of Realtors announced Wednesday, Aug
21, that sales of previously-occupied homes rose in July,
achieving the highest level in close to four years.
Existing home sales rose 6.5% sequentially in July to hit a
seasonally adjusted annual rate of 5.4 million and grew 17.2%
year over year. In fact, the annual pace of $5 million has been
reached for three straight months now.
Moreover, July's median home price dipped 0.2% from June but
increased almost 14% year over year to $213,500. The median price
is just 7.3% below the all-time record of $230,400 reached in Jul
2006. Total existing home inventory also rose 5.6% in the
The data clearly showed that the recently rising mortgage
rates and increasing home prices have not dampened demand
Last week, data published by the National Association of Home
Builders (NAHB), showed that housing starts across the U.S. rose
5.9% in the month of July. Moreover, the association published
another data which showed that Wells Fargo Housing Market Index
(HMI), known as the homebuilder sentiment index, jumped 3 points
to 59 in August from 56 in July. This was the fourth consecutive
monthly increase in the index and was also the strongest increase
in almost eight years.
With the recent improvement in economic conditions and the
housing market in general, mortgage/interest rates are edging
upwards to more normalized levels since May 2013. According to
the Freddie Mac mortgage survey, the 30-year fixed mortgage rate
has risen from 3.59% on May 23 to 4.40% as of Aug 15. In fact,
mortgage interest rates are at the highest level in two
This has raised concerns among some analysts. High interest
rates dilute the demand for new homes, as mortgage loans become
expensive. This lowers a buyer's purchasing power. Moreover, if
the Federal Reserve scales back its current $85 billion bond
buyback program and instead adopts a tighter monetary policy, as
planned, interest rates could shoot up further. This in turn
would lower revenues and profits of for homebuilders.
However, another group of analysts believe that interest rates
are still below historical levels despite the recent hike and
housing is still very much affordable. Home prices have also
started rising with market demand gaining momentum but supply
remaining limited (both of existing and new homes).
In fact, this group of analysts believes that rising home
prices and thinning home inventories have created a sense of
urgency among homebuyers to buy a house before prices or mortgage
rates shoot up further.
Rising interest rates notwithstanding, some companies like
) have witnessed increasing demand in all their housing markets
in the past quarter and were able to push pricing further.
However, others showed some concern.
D.R. Horton, Inc.
) noted at its fiscal third-quarter conference call that the
spike in interest rates have slowed orders.
Meritage Homes Corp.
), at its second-quarter 2013 conference call, admitted to a
little bit of cooling in July due to higher rates, but reported
that demand remained stronger than the Jul 2012 levels.
D R HORTON INC (DHI): Free Stock Analysis
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MERITAGE HOMES (MTH): Free Stock Analysis
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