Existing Home Inventory Climbs. Several Issues Strain Buyer Demand

The National Association of Realtors today released Existing Home Sales data for June 2010.

HERE is the methodology for data collection

Excerpts from the release....

With the scheduled closing deadline for the home buyer tax credits, existing-home sales slowed in June but remained at relatively elevated levels, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million in May, but are 9.8 percent higher than the 4.89 million-unit pace in June 2009.  In addition, existing single-family home sales rose in 12 of the 19 areas from a year ago while two were unchanged.

Single-family home sales fell 5.6 percent to a seasonally adjusted annual rate of 4.70 million in June from a level of 4.98 million in May, but are 8.5 percent above the 4.33 million pace in June 2009.  Existing condominium and co-op sales slipped 1.5 percent to a seasonally adjusted annual rate of 670,000 in June from 680,000 in May, but are 20.5 percent higher than the 556,000-unit pace in June 2009.

Distressed homes were at 32 percent of sales last month, compared with 31 percent in May; it was also 31 percent in June 2009.

A parallel NAR practitioner survey shows first-time buyers purchased 43 percent of homes in June, down from 46 percent in May. Investors accounted for 13 percent of sales in June, little changed from 14 percent in May; the remaining purchases were by repeat buyers. All-cash sales were at 24 percent in June compared with 25 percent in May.

Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May. This is the largest amount of existing homes for sale, in terms of months of supply, since August 2009. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.

The median existing single-family home price was $184,200 in June, up 1.3 percent from a year ago. Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in June in comparison with June 2009. The median existing condo price was $180,100 in June, which is 1.4 percent below a year ago. The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago.

Regionally...

Existing-home sales in the Northeast rose 7.9 percent to an annual level of 960,000 in June and are 17.1 percent above June 2009. The median price in the Northeast was $244,300, down 1.2 percent from a year ago.

Existing-home sales in the Midwest dropped 7.5 percent in June to a pace of 1.23 million but are 11.8 percent higher than a year ago. The median price in the Midwest was $155,900, down 0.1 percent from June 2009.

In the South, existing-home sales fell 6.5 percent to an annual level of 2.01 million in June but are 11.0 percent above June 2009. The median price in the South was $163,600, unchanged from a year ago.

Existing-home sales in the West dropped 9.3 percent to an annual pace of 1.17 million in June but are 0.9 percent higher than a year ago. The median price in the West was $221,800, up 1.5 percent from June 2009

Here is the outlook of the National Association of Realtors,  as communicated by Lawrence Yun, NAR chief economist: “June home sales still reflect a tax credit impact with some sales not closed due to delays, which will show up in the next two months...Broadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge. Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.”

Nothing has changed since last year, the tax credit just covered up structural weakness at the core of housing demand. HERE is a quote from a post written last December:  Until jobs are created (in droves) for the herd of citizens on unemployment benefits, the housing market will undergo a slow, frustrating recovery process, for mortgage and real estate professionals especially. The industry is not done contracting, profit margins will continue to shrink and more jobs will be lost as new regulations take effect and main stream lenders increase competitiveness within the mortgage sector.

Plain and Simple:  JOBS JOBS JOBS! Broad regulatory and economic uncertainties combined with high levels of productivity are keeping companies from adding staff. A lack of job creation was the main issue last year and it's still the main issue this year. When you combine a weak labor market with falling FICO scores, tighter credit regs, and expensive LLPAs, it's not hard to see why record levels of affordability are not drawing out home buyers in droves. This doesn't even account for the fact that banks are now converting shadow inventory to real inventory.

Unfortunately, uncertainty will continue to be abundant until Congress takes up housing reform. I know there is a lot of "hemming and hawing" out there about the complete disregard for Fannie and Freddie in the Financial Reform Bill, but I for one am happy the housing market's future didn't get tangled up in that 2,300 page mess.  I just wish it wasn't an election year so housing finance reform could make some positive progress before 2011. 

Another reason to believe the recovery will be long and slow at best...