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US home sales skyrocket after slow June

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US home sales skyrocket after slow June

Sales of existing US homes rose to their highest level since November 2009, a report by the National Association of Realtors showed. The sale of previously-owned homes soared 6.5 percent in July, after contracting more than 1 percent the previous month due to bad weather. Wednesday’s reading toppled Wall Street’s expectations, which called for a gain of 1.5 percent. In total, 5.39 million previously-owned homes were sold in July, compared to 5.06 million the previous month.

House prices also increased 13.7 percent from a year earlier, the highest in almost eight years. Improving property values, job growth and historically low mortgage rates have contributed to the surge in demand. Over the next 18 months an improving housing sector will be a vital component to US recovery. The surge in housing sales is another sign economic recovery is deepening, and further solidifies the market’s bullish outlook on the housing sector.

Perhaps the biggest threat to the housing market is the increase in borrowing costs. According to Freddie Mac, the average rate for a 30-year fixed mortgage rose to 4.4 percent last week, up from a record low of 3.31 in November. Rising borrowing costs threaten to slow the pace of home sales, which could potentially unhinge cumulative recovery in the US economy. Higher lending rates have encouraged more home-owners to lock-in rates before they shift higher, and may have also discouraged some buyers from entering the market.

Existing home sales advanced at an annualized rate of 17.2 percent in July, according to the NAR report. Month-on-month, the number of previously-owned homes for sale increased 120,000 to 2.28 million. Existing home sales are still recovering from the sub-prime mortgage crisis. In 2008 the sale of previously-owned homes dropped to a 13-year low of 4.11 million. Annual sales peaked at 7.7 million in 2005, the height of the US housing bubble.

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