Economist's Commentary: September 24, 2008

Existing Home Sales in August

By Lawrence Yun, Chief Economist

Existing home sales fell modestly in August. The August sales pace of 4.91 million units is again consistent with fairly stable home sales over the past 12 months. There were a few ups and downs - but broadly stable. The inventory of homes fell by 320,000, which was one of the largest single month declines. Still, the decline is coming off of a record high inventory in July. There were 4.26 million homes on the market at the end of August. Expect a further fall in inventory through the end of the year because of the normal seasonal patterns of fewer listings reaching the market after summer, and from major cut backs by builders in new home construction.

Regionally, over the month, home sales fell in two regions and rose in two regions:

• In the Northeast, sales fell 6.6%
• In the Midwest, sales increased 0.9%
• In the South, sales increased 0.5%
• In the West, sales decreased 5.3%

In the West region, sales fell during the month, but it is the only region with higher sales compared to a year ago. Sales have more or less doubled in Sacramento, Riverside, San Diego, Bakersfield, and Las Vegas. These are the same regions with strong activity in the recent past few months. The momentum is very strong and the sales rise clearly is not a monthly statistical fluke. Buyers are taking advantage of drastically lower prices - many related to distressed foreclosed sales. The southwest coast of Florida is also seeing similar patterns. These are markets where buyers are scrambling to buy, and there have been quite a few reports of multiple-bidding processes, which imply that home prices could be nearing bottom.

Sales appear to have turned the corner (meaning a sales increase from one year ago) in Arizona, Northern Virginia, Miami, Ft. Lauderdale, Port St. Lucie, and Melbourne. Sales appear very close to turning the corner (though not yet) in Orlando, Tampa, Minneapolis, the Maryland suburbs, and Long Island.

Sales are down by more than 20 percent in Seattle, Portland, Charlotte, Nashville, Milwaukee, Chicago, Atlanta, Albuquerque, and Boise. These were generally healthy markets a year ago and also markets where home prices have generally held on better. Therefore, with no notable improvement in affordability, sales were held back.

Nationwide, the August sales were likely depressed from very tight lending standards imposed by Fannie and Freddie. Prior to the government takeover, Fannie and Freddie were desperately trying to preserve capital. However, after the government takeover, mortgage rates have come down by about 50 basis points, and mortgage activities consequently rose. (Mortgage applications fell in the latest week, but the recent four-week moving average is much higher than what it was one month ago before the takeover.)

Inventories of homes on the market declined, but still remain high. At the current sales pace it would take 10.4 months to exhaust the inventory- that is, we are at a 10.4 months' supply of inventory. The falling inventory is also being helped by builders having drastically cut back production. With fewer new homes to compete with existing homes, inventories can get trimmed.

Even with the drop in inventories, buyers continue to have the clear edge over sellers to negotiate for a lower price. Not surprisingly, the national median existing home price in August fell by 9.5 percent from a year ago to $203,100. Prices were lower in all four regions. The price decline was the sharpest in the West region, falling 23.9 percent. Prices were lower by 3.8 percent in the Northeast, 3.4 percent in the South, and 5.6 percent in the Midwest.

Of course, all real estate is local and varies neighborhood to neighborhood. Remove the four states of California, Arizona, Nevada, and Florida that saw speculative booms and hard falls in prices, and the 46 remaining states have experienced little change in price. Many areas have seen a price change of only plus or minus 5 percent from one year ago.

The proportion of distressed sales (short sales or foreclosure sales) continued to be about 35% to 40% of total sales. The latest data is based on question asked of REALTORS® about their most recent transaction.

Detailed housing numbers can be found here.

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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