Existing home sales hit a high not seen since 2006 — before the Great Recession.

By Manuel Gutierrez, Consulting Economist to NKBA

Sales of existing homes rose by 2.4% in August, well off the torrid pace of the previous two months, which saw back-to-back increases greater than 20%. However, the modest increase was enough to bring the total to an annualized rate of 6 million units, the highest since December 2006, just before the Great Recession.

A hot market for home sales, of course, bodes well for the kitchen and bath industry, with potential home-improvement opportunities emanating from both seller and buyer sides. Also, the desire to remodel has been stronger in recent months, given the additional time spent and number of people within the home.

Each of the four U.S. regions contributed to the national increase in home sales. The largest from July’s pace was in the Northeast. Its sales jumped by nearly 14% to an annual rate of 740,000 units. However, this region also accounts for the smallest volume of homes sold, just 12% of the national total.

The two regions that generate the highest volume of home sales, the South, with 43% of houses sold, and the West, with 21%, saw their respective August sales increase minimally, both at 0.8%.

Home sales should continue to be robust at least through the end of the year and potentially throughout most of next year as well. Two forces could eventually hinder those stronger sales, however.

The first is rising home prices. As demand for homes has increased, so have accompanying prices. Last month, the average price of an existing home rose by 8.8% compared to August 2019. That is the largest YOY increase since 2013. In each of the last six years — with the exception of 2017 — annual increases in home prices were under 4%.

Higher prices reduce the number of households that can afford to purchase a home. The National Association of Realtors computes an index to estimate housing affordability. The index compares the median-priced home to median household income. Although affordability had increased through most of last year to peak around April of this year — largely as a result of historically low mortgage interest rates, hovering around 3% — the index has fallen over the last four months, from a peak value of 171.2 to 163.3 currently. At least for now, that still offers plenty of wiggle room, since an index above 100 means a household has sufficient income to afford a median-valued home.

A second factor that will continue to impact home sales is the low inventory of existing houses for sale. There were only 1.49 million homes for sale at the end of August, nearly 19% lower than a year ago.

At the current annual sales pace of 6 million units, the inventory is only sufficient to meet three months’ worth of demand. This is the lowest level in at least two years.

Unless more existing homes enter the market, this situation will persist. A potential source of existing homes to be sold are the 6.2 million houses that are currently vacant and unused, but off the market for a variety of reasons. Among them are situations where the homeowner died but the home hasn’t yet been listed, or a house is in a less desirable/hard-to-reach location. If the trend toward remote work continues, such homes may become viable accommodations in a tight market.