Economist's Commentary: August 25, 2008

Existing Home Sales in July

By Lawrence Yun, Chief Economist

Existing home sales (single-family plus condos and coops) rose 3.1 percent in July to 5.00 million units on a seasonally adjusted annualized basis, from a downwardly revised 4.85 million unit pace in June. Compared to the same period a year before, July activity was 13.2% lower.

Inventories at the end of July rose despite increases in sales. There were 4.67 million homes listed for sale - which is an increase of 3.9 percent from the previous month - all driven by the increase in condo inventory. The inventory now represents an 11.2 months supply at the current sales pace. The 4.67 million homes are an all-time high and 11.2 months matches the high mark set in April and are the highest since the early 1980s.

The national median exist home price in July was $212,400, which is a decline of 7.1% from one year ago. A month-to-month look at raw figures are not too meaningful because of the mix of homes issues (i.e. due to a more than normal portion of larger sized homes being sold during the spring and summer months). However, the seasonally adjusted month-to-month price data has been fairly stable over the past three months - possibly indicating that home prices may have reached the bottom - though many uncertainties, particularly in regards to mortgage credit availability, remain. Those who are able to get a mortgage will have a field day in choosing the right home at a very good price.

The national data suggest sales have stabilized and prices may soon follow that trend. All real estate is local, however. There were striking differences across the country. Regionally price decline was the sharpest in the West region, falling 22.2 percent. But the lower prices have enticed buyers back into the market place. Home sales rose the strongest in the West region. Here is a full breakdown of the four major regions:

• West: sales rose 9.7 percent, prices fell 22.2 percent
• Northeast: sales rose 5.9 percent, prices fell 4.9 percent
• South: sales fell 0.5 percent, prices fell 3.5 percent
• Midwest: sales increased 0.9 percent, prices rose 1.0 percent

At metro levels, sales are zooming with more than double or near double in Sacramento, Riverside, Ft. Myers, and Las Vegas. There are many reports of multiple bidding in these markets. What does that mean? Perhaps a bottom has been reached also in terms of price in these markets? Could there be a snap-back in prices after overcorrecting? Will price gains be a slow moving process?

Here's a breakdown on the single-family versus condo markets:

• Single family home sales rose 3.1, while price fell 7.7 percent
• Condo sales rose 3.4 percent, while prices declined more modestly at 2.7 percent
• The total homes listed for single-family homes were unchanged at 3.9 million.
• The condo inventory rose from 595,000 to 769,000.
• The months-supply of single-family homes was trimmed to 10.6 months from 11 months, but condo months-supply increased significantly to 15.1 months from 12.1 months.

The condo inventory has consistently been bouncy. One reason is due to a larger sampling error arising from less complete market coverage. Yet today's increase is far more than can be accounted for due to statistical noise and it reflects some newly completed condo construction that is just hitting the market after being in construction for the past 2 or 3 years. Furthermore, condo sales have been relatively weaker than the single-family sales over the several past quarters, while condo prices held up better than that of single-family units. Today's data show single-family sales falling from a year ago by 13% while condo sales fell 18%.

As mentioned, some markets are seeing a "boom" in sales as buyers respond to lower prices. Solid gains were also noted in Northern Virginia, Orlando, and Monterey, CA. But most markets continue to see 10 to 20 percent lower sales from a year ago. Chicago, Pittsburgh, Cincinnati, Indianapolis, and Kansas City fall into that category. Bigger declines were observed in Des Moines, Seattle, Portland, Nashville, Charlotte, Atlanta and Maryland. Aside from Des Moines, where floods and the residual impact have held back sales, these are areas where home prices were rising last year and were considered "stronger" markets back then. Many Texas markets also witnessed about 10 to 20 percent sales declines despite very healthy local economies and job gains. The sales decline is no doubt attributable to tighter mortgage conditions.

Because of high inventory, builders clearly need to further cut back on production. Federal policy response should be counter-cyclical of actively buy mortgages and providing homebuyer tax credit incentives in times of low housing demand. Conversely, the lending criteria can be tightened when the housing market heats up.

Today's data reflect all home sales that go through the multiple listing services. One recent trend that I have begun to hear is on pre-listed REO sales. Banks hire a Realtor brokerage to sell before it even goes up on MLSs. These type of sales are not in our statistics and I do not know the prevalence of these sales as of yet.

In summary, existing home sales rose modestly in July. Some local markets are seeing a significant rise in sales - induced by falling home prices. The overall national inventory continued to move higher driven by a rise in condo inventory. The national median home price was 7.1 below one year ago.

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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