US existing-home sales likely slipped in October

Industrials Associated Press

The National Association of Realtors reports on sales of existing homes in October. The report is scheduled to be released Thursday at 10 a.m. Eastern.

Continue Reading Below

SLIGHT SALES DROP: Economists expect that sales dipped 0.4 percent to a seasonally adjusted annual rate of 5.15 million last month, according to a survey by data firm FactSet. September purchases rose 2.4 percent to an annual pace of 5.17 million, though sales were still running 1.7 percent below their September 2013 levels.

SLUGGISH MARKET: Home sales slumped through much of 2014 after a three-year rally in the wake of the recession and the implosion of the housing market. Harsh winter weather crippled sales at the beginning of 2014, just as tight credit, rising home prices and essentially flat incomes increasingly limited the number of buyers who could afford a home.

At the same time, investors are backing off properties to either rent out or renovate and resell.

Over the 12 months ended in September, the share of homes being bought by investors has slipped to 14 percent from 19 percent, according to the Realtors. As the real estate market has mended from the recession, the opportunity has eroded for investors to profit from being homes at steep discounts.

)Just 4 percent of the single-family houses sold in the third-quarter were flipped by investors, who frequently bought distressed properties on the cheap, fixed them up, and put them back on the market, according to a report released Thursday by housing data firm RealtyTrac.

Continue Reading Below

Flipping accounted for 5.6 percent of sales during the same period in 2013. Its share nearly reached 10 percent in 2012.

Not counting renovation costs and other expenses, investors made on average a 36 percent_$75,900_on each home they flipped. That profit margin fell from 37 percent last year. But unlike recent years when flippers bought at a discount and sold the homes at a discount compared with the broader market, sales are now at a 6 percent premium, suggesting that their repairs are more extensive than in the past.

"The flippers aren't just slapping on a fresh coat of paint and rolling out new carpets," said Daren Blomquist, vice president at RealtyTrac.

The Realtors estimate that 4.94 million existing homes will be sold this year, down 3 percent from 5.09 million in 2013. Analysts say sales of roughly 5.5 million existing homes are common in a healthy real estate market.

Home prices have been increasing at a much faster clip than incomes, hurting affordability and causing sales to drag. Prices increased 5.6 percent in September compared with a year ago, real estate data provider CoreLogic reported. While the pace of appreciation has slowed this year, it still is almost three times greater than the approximately two percent increase in average wages tracked by the Labor Department.

Lower mortgage rates in recent weeks have improved affordability, though sales have yet to rise substantially. Average 30-year mortgage rates have been hovering around 4 percent, down nearly half a percentage point since January.

Still, there are signs that home sales will improve in 2015.

The National Association of Home Builders/Wells Fargo index rose to 58 this month, up from 54 in October, a sign that sales of newly-built homes should continue to improve over the next six months. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Separately, the Commerce Department reported Wednesday that applications for building permits rose 4.8 percent in October to 1.08 million, evidence that construction activity could accelerate next year.