Home Sales Climbs 7.7% In August

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August was a good month for sales of previously owned homes. Housing sales increased 7.7%. This translated to a seasonally adjusted annually rate of 5.03 million housing units.

Economists are still not excited with these sales numbers. They expect sales to be around 6 million units in order to provide some momentum to a stagnant housing market.

An increase in foreclosure activity was behind the rise in sales for August. This is an indication that home prices still have a long way to fall.

First time homebuyers have not participated in this buying frenzy. Our first time homebuyers represented 32%  of sales in August. This was the same percentage in July. The percentage is normally 40%. For the most part, they have remained renters. There are a couple reasons for their action.

Number one, they are waiting for house prices to fall further. Buyers do not want to pay $200,000 for a house today which they can purchase a year later for $150,000. It makes perfect sense to rent the house and wait.

Number two, they can not get acceptable financing. Mortgage rates are at record lows today. The 30 year fixed rate mortgage is around 4.0%. Many lenders are heavily promoting the 4.0%, but this rate is seldom given to borrowers. There is always an issue with the credit score. It's never high enough.

Real estate investors are fueling the increase in house sales. Investors accounted for 22% of sales in August and 18% in July. The boom in previously owned homes come at the expense of new construction. New construction is 30% more expensive.

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