Existing home sales increased 6.5 percent in July to a seasonally adjusted annual rate of 5.39 million units, gaining on a downwardly revised 5.06 million-unit rate in June; the rate is 17.2 percent above the 4.60 million-unit pace in July 2012, marking the 25th month that sales have remained above year-ago levels.

Despite the bite that rising mortgage rates took out of new home sales in July, existing home sales made strong gains, according to a recent National Association of Realtors report. The median home price added another double-digit year-over-year increase, growing for the 17th consecutive month and nearing the pre-recession peak.

Lawrence Yun, NAR's chief economist, said changes in affordability are impacting the market. "Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines," he said. "The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers."

Single-family home sales rose 6.3 percent to a seasonally adjusted annual rate of 4.76 million in July from 4.48 million in June, and are 16.4 percent higher than the 4.09 million-unit level in July 2012. Existing condominium and co-op sales increased 8.6 percent to an annual rate of 630,000 units in July from 580,000 in June, and are 23.5 percent above the 510,000-unit pace a year ago.

The median time on market for all homes was 42 days in July, up from 37 days in June but 39 percent faster than the 69-day median in July 2012.

Prices & Inventory
The national median existing-home price for all housing types was $213,500 in July, which is 13.7 percent above July 2012. This marks 17 consecutive months of year-over-year price increases, which last occurred from January 2005 to May 2006.

The median price has risen at double-digit rates for the past eight months, and is now 7.3 percent below the all-time record of $230,400 in July 2006. Two years ago, the median price was 25.7 percent below the peak.

The median existing single-family home price was $214,000 in July, up 13.5 percent from a year ago. The median existing condo price was $209,600 in July, which is 15.5 percent higher than July 2012.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.37 percent in July from 4.07 percent in June, and is the highest since July 2011 when it was 4.55 percent. The rate was 3.55 percent in July 2012.

Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery. "Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall."

Total housing inventory at the end of July rose 5.6 percent to 2.28 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, unchanged from June. Listed inventory is 5.0 percent below a year ago, when there was a 6.3-month supply. "Tight inventory in many areas means above-normal price growth for the foreseeable future," Yun said. Data from realtor.com shows the tightest inventory conditions, measured by median age of inventory, are in Oakland, Calif., 20 days; Denver, 31 days; and the Seattle area, 36 days.

Distressed Homes
Distressed homes – foreclosures and short sales – accounted for 15 percent of July sales, the same as in June and matching the lowest share since monthly tracking began in October 2008; they were 24 percent in July 2012. Continuing declines in the share of distressed sales account for some of the price gain.

Nine percent of July sales were foreclosures, and 6 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in July, while short sales were discounted 12 percent.

Short sales were on the market for a median of 72 days, while foreclosures typically sold in 50 days and non-distressed homes took 40 days. Forty-five percent of homes sold in July were on the market for less than a month.