US existing home sales to climb further

As of May, existing home sales in US stood at their highest level since 2009. 

Societe Generale expects the resales to climb further by a modest 0.6% m/m to 5.38 mln units. Housing demand is being underpinned by improved employment and income prospects which have recently triggered a sharp increase in household formations. Admittedly, this has disproportionally benefited the rental market, but there is some evidence that young renters are transitioning into first-time home buyers. Although a significant portion of resale activity is still being driven by investors (14%) and all-cash buyers (24%), the ratio of first-time home buyers has been increasing steadily during the first half of the year and now stands at 32%, notes Societe Generale. 

The return of the first-time home buyers is also evident in the mortgage applications data, where the volume of purchase applications increased sharply this year. To be sure, mortgage financing conditions are still tight and continue to be an impediment to housing demand, but at the margin, banks have been easing lending standards since September 2014. As access to financing continues to improve, the labor market tightens and rental inflation remains under pressure, therefore, further gains in housing demand is expected, argues Societe Generale.