Economist's Commentary: July 24, 2008

June Existing Home Sales

By Lawrence Yun, Chief Economist

Existing home sales fell in June to the lowest level in 10 years. The sales of 4.86 million units (seasonally adjusted annualized rate) was a 2.6 percent decline from a month before and a 15.5 percent drop from a year ago. It also marks the lowest sales pace since the first quarter of 1998. Nonetheless, the June figure, again as in the past 10 months, is not too far off the 5 million sales mark. Since the credit crunch from August 2007, the sales pace has essentially reflected the near complete disappearance of the subprime loan originations.

Because of lower sales, inventory rose modestly (0.2 percent) to 4.49 million homes listed for sale. In the latest month, the inventory represented a 11.1 months supply at the current sales pace. Still high.

However, there are significant local market variations. Sales have continue to ramp up in markets where prices have come down by 20 percent to 30 percent. Bargain hunters and first-time home buyers who had been priced-out during the boom years have returned to the market. As before sales are rising strongly on a year-over-year basis in:

• Ft. Myers
• Las Vegas
• Riverside
• Sacramento
• Prince Williams County, Virginia

Markets that are now beginning to witness rising sales include Orlando, Phoenix, and Oakland. These markets have also experienced notable price declines.

Interestingly, sales have fallen in areas where I would not have anticipated. Houston, Dallas, San Antonio, Kansas City, and Atlanta are examples. These are very affordable markets with many homes priced under $200,000. They also have solid local job growth conditions.

Falling home sales were also observed in the "healthy markets," where prices have increased in the last year and are still holding on to those gains. They also have low foreclosures. Yet, sales are falling. Charlotte, Raleigh and the Pacific Northwest markets of Portland and Seattle have sales declines in excess of 20 percent from a year ago.

I am very happy to see the housing stimulus bill finally nearing the end-zone. Many first-time homebuyers will want to take advantage of the temporary $7,500 homebuyer tax credit that will be in place till mid-next year. (Those first-time buyers who purchased from mid-April also will get this tax credit.) I estimate nearly 3 million homebuyers will have taken advantage of this benefit by the time the tax credit expires next year. These first-time buyers will also stimulate sales for trade-up, trade-down purchasers as they are now able to sell their homes.

In addition to the tax credit, the housing stimulus bill will also permanently raise the loan limit for FHA and GSE loans, thereby saving consumers thousands of dollars in mortgage interest costs.

I am also hopeful that home prices will soon begin to stabilize. Today's data on prices was a mild deceleration from the recent past. The national median existing home price in June was $215,100, which is a decline of 6.1 percent from one year ago. The declines in the four previous months had been -8.4 percent, -8.0 percent, -8.5 percent, and -6.6 percent.

The price declines were also decelerating in other price measurements: OFHEO and Case-Shiller.

Regionally price decline was the sharpest in the West region, falling 17.2 percent -- which also explains the overall sales increase in that region. Price declined 12.6 percent in the Northeast and 2.4 percent in the South. The median price actually rose in the Midwest by 2.8 percent.

The speedy price declines of 20% to 30% in a short 12 to 18 month-span in some of the hard hit markets have been very painful for homeowners who bought during peak years. But the price declines and the recent rising sales in these regions suggest most of the price declines may have already occurred. I would think there is definitely more upside potential than downside potential regarding home prices from this point onwards. With the housing stimulus bill nearing the end zone and the President removing the veto threat, the housing market will soon be on the way to recovery.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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