The U.S. housing market is back, baby!
After an epic meltdown following years of rampant speculation, the U.S. housing market has made serious recovery strides. Data from the National Association of Realtors on existing home sales in May continued to show the steady gains for the housing in the U.S.
The overall pace of existing home sales has picked up and reached a seasonally adjusted annual rate of 5.18 million in May. As interest rates pick up, the refinance boom that's been going on for a few years is rapidly slowing. That will hit the fees that major mortgage originators like Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) collect when they originate a loan and resell it. However, if purchase volume continues to pick up, fees from those transactions could be a partial offset to the drop in refis.
Compared to the home-price peak of more than $225,000 in 2006, the median existing-home sales price in may of $208,000 is still relatively affordable for home buyers. At the same time though, rising home prices are salve to the psyche (and overall wealth) of home-owning consumers. It's also a boon for banks as rising home prices makes homeowners less likely to default. Among the big banks, Bank of America (NYSE:BAC) still has 2.6% of its loans in nonperforming status, while Wells Fargo shows 2.4%. Continued gains in home prices could help push those ratios lower.
As sales pick up, the abundance of housing inventory that was sloshing around in the market is getting sopped up. Lower inventory helps underpin further gains in home prices -- remember Econ 101: lower supply can help push prices up. Tightening inventory is also music to the ears of homebuilders. Just this week, we saw solid quarterly numbers from both Lennar (NYSE:LEN) and KB Home (NYSE:KBH). New orders at Lennar were up 27% year over year, while its backlog dollar value leaped 76%. At KB, homes delivered were up 39% even as the average selling price climbed 25%. In other words, both companies seem to be reaping the gains that we see in all three of the above charts.