Existing home sales numbers in August fell short of expectations. However, existing home inventories falling to the lowest level since 2007 and prospects of a homebuyer tax credit extension provided reasons to believe that the housing recovery will continue. See the following article from The Street, for more details.
The housing market’s winning streak has come to an end.
Existing home sales slipped 2.7% in August to an annual rate of 5.1 million, according to the National Association of Realtors. This was the first decline in five months. Economists had expected sales to continue at an annual pace of 5.35 million.
The news sent shares of homebuilders down, losing morning gains. KB Home(KBH Quote) declined 3% to $18.30, Toll Brothers(TOL Quote) decreased 2% to $20.27, MDC(MDC Quote) fell 2.5% to $35.67, Lennar(LEN Quote) dropped 4.5% to $14.82 and Pulte Homes (PHM Quote) tumbled 3% to $11.55.
The August existing-home sales figures represent “a mild retreat from a very strong gain in July,” said Lawrence Yun, chief economist for the real estate trade group. “Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process. But the decline demonstrates we can’t take a housing rebound for granted.”
But year-over-year, sales were up 3.4% during the month.
The median sale price tumbled 12.5% to $177,700, down from $203,200 during the same time last year.
Inventories were down 10.8% to 3.62 million available for sale, representing an 8.5-month supply at the August sales pace, the lowest since April 2007.
Adding to the uncertainty, the debate continues as to whether or not the $8,000 tax break for new home buyers, which is slated to end in November, should be extended.
“The recent trend shows broad improvement in more of the country, but with an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory,” Yun said in a statement. “An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market.”
Goldman Sachs upgraded the housing sector on Thursday and said there’s more than a 50-50 chance the tax break will be extended.
No matter if this tax break continues or not, Jim Cramer advises investors to skip the homebuilders and instead buy Bank of America(BAC Quote) and Wells Fargo(WFC Quote). He says unless we see job creation, home prices will not appreciate.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.