Existing home sales for January hit the highest level since July last year. A substantial annual increase was also registered, signaling that the housing recovery was on course. This was contrary to earlier estimates that sales would decline last month.

This indicates that the housing industry is in better shape than earlier estimated. A more comprehensive analysis of the industry also indicates that homebuilders and related stocks remain a good option. This means that adding stocks from this sector to your portfolio remains a good option.

Six-Month High

Existing home sales increased 0.4% in January to a seasonally adjusted annual pace of 5.47 million. Sales touched a six-month high and joined a clutch of economic reports suggesting that the economy was in better shape than what some market watchers would have us believe.

Additionally, sales registered an annual increase of 11% last month. This was the largest yearly increase recorded since Jul 2013. The data runs contrary to the consensus estimate that sales of homes owned earlier would drop to 5.33 million from the revised pace of 5.45 million seen in December.

Industry Headwinds

A section of economists continue to believe that sales could dip over the next few months. Consumer confidence has declined sharply over February, also coming in below estimates. Additionally, the number of individuals planning to purchase a home over the next six months also declined.

Additionally, the S&P/Case-Shiller 20-City Home Price Composite recorded a 5.7% increase on a yearly basis. This raises concerns about how affordable homes would continue to be. Also, the supply of previously owned homes declined 2.2% on a yearly basis.

Prospects Remain Bright

However, home prices still rose at a pace lower than what was estimated by most economists, a 5.9% increase. More importantly, there is enough evidence to show that the housing market continues to make a slow and steady recovery. Last year was the best one for existing home sales since 2006.