U.S. existing home sales rebound in September but supply likely to constrain sales through 2016

U.S. existing home sales recovered in September from a slightly downwardly revised data for August. Sales rose 3.2 percent sequentially to 5.47 million annualized units from August’s downwardly revised 5.3 million units. September’s headline figure was significantly stronger as compared with market projections of the sales to increase more moderately to 5.35 million units.

The rebound in September’s data was totally concentrated in the single-family segment, which grew 4.1 percent month-on-month to 4.86 million. Sales in this month increased following two months of declines. In the meantime, activity slowed in the smaller and more volatile multifamily segment, where sales dropped 3.2 percent sequentially to 610k.

Meanwhile, first-time home buyers contributed 34 percent to the overall sales in September. Region wise, sales improved widely. The West and the Northeast regions recorded the strongest gains of 5 percent and 5.7 percent, respectively.

Inventory of houses on the market increased slightly in the month; however, availability continued to be limited. The number of for-sale homes rose 1.5 percent, but on a year-on-year basis, it was down 6.8 percent. Low supply of houses on the market is keeping pressure on prices of home. Median prices were up 5.6 percent annually in September, a rise from 5 percent in August.

Overall, the existing home sales report for September was quite strong. Moreover, the report implied certain rebound in inventory and a rise in activity amongst first-time homebuyers. First-time home buyers are expected to keep benefitting in the future from a sound job market, low mortgage rates and increasing wages, noted TD Economics. Also, there is some evidence that implies new construction has been shifting towards affordable houses.

However, market overall continues to face restricted inventory of houses for sale, which might prevent resale activity from growing in months ahead, according to TD Economics.

“While demand is likely to remain strong given the macroeconomic fundamentals, we expect home purchases to be constrained by supply, with activity likely to nudge up only slightly higher through the rest of the year”, added TD Economics.