Despite what they referred to as "headwinds," the National Association of Realtors (NAR)® reported on Wednesday that sales of existing homes were up in August compared to July and were significantly higher than one year ago, although prices continue to fall.  Total existing home sales rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million from July's upwardly revised figure of 4.67 million and are 18.6 percent higher than the 4.24 million pace in August 2010.  Total existing-home sales are completed transactions that include single-family, townhomes, condominiums and coops.

NAR noted that the gains came in spite of continued tight credit and appraisal problems and the disruptions up and down the East Coast caused by Hurricane Irene.  The gains were seen in all regions although, according to NAR Chief Economist Lawrence Yun, the hurricane might be responsible for the smallest August gains occurring in the Northeast which received the brunt of the flooding, and power outages.  The hurricane hit during the last week of August, the period when most real estate closings are scheduled.

Single family home sales increased 8.5 percent month-to-month and 20.2 percent since August 2010.  SFR sold at an annual rate of 447 million homes compared to July when sales were at the rate of 4.12 million.  Sales of condos and cooperatives also rose to an annual rate of 560,000 from the pace of 550,000 in both July and June.  This was a monthly increase of 1.8 percent and was 8.3 percent above the 517,000 sales pace one year earlier. 

Both median and average sales prices declined for the second straight month.  Nationally the median price was $168,300 compared to $171,200 in July and $177,300 during the same period in 2010.  The average price was $216,800 compared to 220,400 in July and $225,800 one year ago.  The median existing single-family home price was $168,400 in August, which is 5.4 percent below a year ago. The median existing condo price⁵ was $167,500 in August, down 3.3 percent from August 2010.

The price declines are at least partially fed by the sale of distressed homes, foreclosures and short sales which are typically sold at deep discounts.  These which accounted for 31 percent of sales in August, compared with 29 percent in July and 34 percent in August 2010.

Investors were responsible for 22 percent of purchase activity in August, compared to18 percent in July and 21 percent in August 2010.  First-time buyers purchased 32 percent of homes in August, unchanged from July and down one percentage point from August 2010.

Twenty-nine percent of August transactions were all-cash, unchanged from July and up slightly from 28 percent in August 2010; investors account for the bulk of cash purchases.

Contract failures continued to be a problem.  These cancellations, which are caused primarily by declined mortgage applications or because appraisal values come in too low to support the negotiated price, were reported by 18 percent of NAR members in August, double the number one year ago and 2 percentage points higher than in July.

Yun said there are some positive market fundamentals.  "Some of the improvement in August may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations," he said.  "Investors were more active in absorbing foreclosed properties.  In additional to bargain hunting, some investors are in the market to hedge against higher inflation."

Yun said an extremely important issue currently is the renewal and availability of the National Flood Insurance Program, scheduled to expire at the end of this month.  "About one out of 10 homes in this country need flood insurance to get a mortgage, and we would see significant negative market impacts without it," he said.

Total housing inventory at the end of August fell 3.0 percent to 3.58 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, down from a 9.5-month supply in July.

On a regional basis sales rose 2.7 percent month over month in the Northeast to an annual rate of 770,000 and are 10.0 percent above one year ago.  Sales in the Midwest were up 3.8 percent and 26.7 percent respectively to a pace of 1.09 million and the South saw a 5.4 percent increase to 1.94 million, 16.9 percent higher than in August 2010.  Sales jumped to 1.23 million, in the West, up 18.3 percent from July and a 20.6 percent increase in a year.

Median prices were lower than August 2010 in every region.  In the Northeast the price was $244,100, down 5.1 percent and in the Midwest $141,700, down 3.5 percent.  The West fell 13 percent to $189,400.  The smallest drop was in the South, down 0.8 percent to $151,000.

NAR President Ron Phipps said the market is remarkably affordable for people with secure jobs, good credit and long-term plans.  "The biggest factors keeping home sales from a healthy recovery are mortgages being denied to creditworthy buyers, and appraised valuations below the negotiated price.  Buyers may be able to find more favorable credit terms with community and small regional banks, and Realtors^® can often give buyers advice to help them overcome some of the financing obstacles," Phipps said.