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Existing Home Sales Reach Highest Level in 6.5 Years

The National Association of Realtors reported Thursday that existing home sales reached their highest level in six and a half years in August as buyers rushed in to lock in low mortgage rates before the Federal Reserve begins tapering its easy money policy. The Central bank has been purchasing $85 billion worth of Treasury bonds each month to keep rates low. According to the NAR's report, sales surged 1.7 percent from July to August to an annualized pace of 5.48 million, outperforming the 5.25 million unit pace expected on average by a group of economists in a recent Reuters poll.

While certainly good news for the nation's housing market, economists warned that August's uptick in home buying will likely be a temporary anomaly, as the Fed will eventually begin winding down its Treasury purchases, and mortgage rates will rise in response, pricing many would-be buyers out of the market. The program entails the purchase of government bonds, including the 10-year Treasury, a closely monitored bond because interest rates track its yield. When the Fed does begin cutting back, the yields will go up, and mortgage rates will follow. This process has already begun just because of the threat of the program being dialed back, with the average rate for a 30-year, fixed-rate mortgage rising from 3.35 percent to 4.5 percent since May, when Fed Chairman Ben Bernanke first began discussing the possibility.

With sales picking up, prices continued to rise around the US as well, as an already constrained inventory became even tighter, representing a 4.5 months supply at the August pace. A six month supply is generally considered a healthy supply in a well balanced market. The NAR said in its report that the median price paid for existing homes sold in August was $212,100, up 14.7 percent on a year-over-year basis. That's because investors have cleared out much of the distressed properties on the market through the recession. In fact, foreclosures and other distressed sales only accounted for 12 percent of overall sales last month, the lowest share since the NAR began tracking those figures in 2008.

September 20, 2013