Profiting On Existing U.S. Home Sales Whether They Soar or Sour

real estate: When it comes to the U.S. housing market, everything may look perfect on the surface, with homes being swept up at a rapid pace. However, this could all fall apart with the answer to one simple question: do existing-home sales numbers signal continued strength in the U.S. housing market and housing market-related stocks (NYSEARCA:IYR)?

U.S. existing-home sales climbed 1.7% month-over-month to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July. The year-over-year numbers are even more staggering, up 13.2% over the 4.84 million level in August 2012. While U.S. housing market sales are at their highest peak since February 2007, they are also above year-ago levels for the past 26 months (June 2011). (Source: “August Existing-Home Sales Rise, Limited Inventory Continues to Push Prices,”, September 19, 2013.)

Unfortunately, for many reasons, the party in the U.S. housing market might be short-lived.

In January, the interest rate on a 30-year fixed mortgage was around 3.41%; today, it’s 4.55%. While one percentage point might not sound like much, it translates into an increase of more than 30%. With mortgage rates on the rise, many first-time home buyers fear that affordability will be out of reach. (Source: “Average Mortgage Rates: January 2013,”, last accessed September 19, 2013.)

In an effort to do a runaround on rising interest rates, many first-time home buyers are jumping into the housing market. While interest rates are on the rise, it’s important to remember that they’re still well below the 6.48% level offered in August 2008, just before the housing market crashed. Still, the rise in interest rates was enough to help propel August’s U.S. housing market numbers.

It’s also important to note that August U.S. home sales take into account contracts signed in June and July, when mortgages were on the rise. Buyer traffic dropped significantly in August, pointing to weaker existing U.S. housing numbers throughout the autumn.

Even though existing-home sales in August were up 1.7% month-over-month, it looks like first-time home buyers are still having difficulty climbing onto the property ladder. Just because interest rates remain low doesn’t mean they can qualify for loans.

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