June Home Sales Slow But Up From Last Year

Portions of this article taken from Realty Times

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.

Lawrence Yun, NAR chief economist, said the market shows uncharacteristic yet understandable swings as buyers responded to the tax credits. "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," he said.

"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."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.74 percent in June from 4.89 percent in May; the rate was 5.42 percent in June 2009.

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. 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.

"The supply of homes on the market is higher than we'd like to see. But home prices are still holding their ground because prices had already overcorrected in many local markets," Yun said. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.

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. 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. In addition, existing single-family home sales rose in 12 of the 19 areas from a year ago while two were unchanged.

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. The median existing condo price was $180,100 in June, which is 1.4 percent below 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.

So What Should We Expect?

As the economy slowly recovers, we look to 2011 with eager anticipation. 2010 is the benchmark year in the housing slump. Why? Because it is the year when we finally hit the bottom. Generally the housing market follows a year or so behind the stock and commodities markets which turned the corner in October 2008, so this recovery is really taking its' time. The main focus is job creation/growth/sustainability which will lead to consumer confidence not only in segments such as retail, manufacturing and durable goods, but in the housing market as well. If (and that's a big if) jobs are protected and created within the next few months we should see a slight upswing in prices for existing homes and stability returning to the housing market.

There are a few issues that worry me outside of jobs and those are: simple supply and demand economics, and interest rates. As I am writing this we currently have about a 8 1/2 to 9 month inventory of homes in Southeastern Wisconsin (still a strong buyer's market). When there is too much inventory (homes on the market) and not enough demand (buyers in the marketplace), home prices fall. As a real estate agent, I try to educate my sellers that in this market we have to look at their competition...the other houses that are on the market currently. If my sellers home is comparable to the others but their home is $5,000 more expensive, buyers will purchase the less expensive home. The problem is everybody's doing it. And home prices have fallen. Until we either have too many buyers for the properties that are for sale now, or if those properties drop out of the market, we will continue to see home prices fall. The second component is the interest rates. All signs point to rising interest rates, which will slow the number of buyers entering the market. So even if houses fall off the market and interest rates rise, we may continue to see falling prices.

That's the "glass is half empty" scenario. I am optimistic that what is going to happen this fall and into 2011 is we will see a lot of homes drop off of the market and interest rates holding between 5-6% will spur more buyers into the market...especially first-time homebuyers. This will be the best case scenario because that will lead to more of a "neutral" market (which is normal, and will end the buyer's market). My glass ball is saying prices will hold stable in 2011 and will actually start increasing in 2012. There is still a lot that can go wrong as previously stated, but we have to have courage and faith that we will get through this recession and have a prosperous 2011.