Existing home sales and builder sentiment

Existing Home Sales in Oct totaled 4.79mm, 50k more than expected but Sept was revised down by 60k to 4.69mm. The Oct annualized run rate is the 2nd highest (Aug at 4.83 was highest) since the tax credit influenced months in Apr and May ’10. Sales were seen for both single family and condos/co-ops and months supply fell to 5.4 from 5.6 as the absolute amount of homes for sale fell by 30k. This inventory to sales ratio is the lowest since Feb ’06 and is the main driver for the 11.1% y/o/y price increase to $178,600 but that is still below the high of ’12 of $188,800. Distressed sales made up 24% of the total, unchanged with Sept but down from 28% in Oct ’11. We are seeing a continued increase in the amount of investor buying which is helping to boost sales. Investors, who mostly in turn rent them out, made up 20% of sales vs 18% in Sept and 18% in Oct ’11. Bottom line, housing sales continue to improve, albeit it off a very depressed level. Single family home sales are just back to where they were in Dec 1997 and remain below the 20 yr average of 4.41mm annualized. The runway is thus long for improvement but the recovery will be in fits and starts. The housing data in the next few months will certainly reflect the negative impact of the hurricane

Separately, home builder sentiment gained 5 pts to 46, just shy of the breakeven between growth and contraction. It’s the best level since May ’06 and was mostly led by the Present situation component which was up 8 pts to 49. The Future outlook rose 2 pts to 53 but Prospective Buyers Traffic was flat at 35. The NAHB is citing the shrinkage of inventories of foreclosed and distressed properties in markets across the country as the catalyst for the new home optimism. The caveat to the recovery remains the same, “difficult appraisals and tight lending conditions for builders and buyers remain limiting factors.”

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