Home Sales Continue to Skyrocket

The housing recovery hasn't lost any of its momentum -- at least for another month, anyhow.

Yesterday, the National Association of Realtors released its estimate of existing home sales for the month of August. One of the big questions that had lingered since its previous release was whether or not July's surge in previously owned home sales was sustainable.

As you can see in the chart below, the answer appears to be "yes."

Existing home sales increased last month to a seasonally adjusted annual rate of 5.48 million homes. That equates to a 1.7% increase over July and a 13.2% jump over the same month last year. It's the highest level in six and a half years.

While many analysts and commentators had feared that the recent rise in interest rates would weigh on the housing recovery, it now seems as if the trend had an opposite effect. "Rising mortgage interest rates pushed more buyers to close deals," said Lawrence Yun, NAR's chief economist.

The news was similarly upbeat when it came to home prices. According to the trade association's data, the national median existing home price for all housing types was $212,100 in August. That equates to a 14.7% increase on a year-over-year basis and was the strongest such gain since October of 2005, when the median rose by 16.6%.

August marked the 18th consecutive month of year-over-year price increases, and the ninth month in a row that they shot up by double-digits. The biggest beneficiaries of this trend are the 7.1 million homeowners that are still underwater on their mortgages.

"As the equity position of most homeowners continues to improve," says NAR president Gary Thomas, "some who have been on the sidelines will list their home for sale."

One side effect of the increased pace of home sales has been the concomitant decline in supply. While the total inventory at the end of August increased 0.4% to 2.25 million existing homes available for sale, when compared to the rate of sales, there is currently only a 4.9-month supply. This is down from a five-month supply the previous month.

In terms of stocks, it's hard to imagine a better scenario for the nation's largest homebuilders to operate in. And we've seen the results of this trickle down to the earnings of both D.R. Horton (NYSE: DHI  ) and Toll Brothers (NYSE: TOL  ) .

In the most recent quarter, the former reported a 12% increase in net sales orders and a 30% improvement in the number of units closed on. Meanwhile, net signed contracts at the latter were up by 26% while deliveries were higher by 10% (both increases relate to unit counts, not dollar figures). The executives at both companies, moreover, have expressed positive opinions about the ongoing industry dynamics.

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