Existing Home Sales in May

By Lawrence Yun, Chief Economist

Existing home sales rose 2.0% in May to a seasonally adjusted annualized rate of 4.99 million units, from a 4.89 million unit pace the previous month. Compared to the same period a year before, May activity was 15.9 percent lower. It is a small increase, but an increase nonetheless. Rising sales is the first and most necessary condition before any other housing measures can stabilize. Only with rising sales can inventory be lowered and home prices stop declining.

• Regionally, existing home sales increased in three of the four major regions. Sales:
  Increased 4.6% in the Northeast
• Increased 5.5% in the Midwest
• Increased 2.0% in the West
• Decreased 0.5% in the South

The national median existing home price in May was $208,600, which is a decline of 6.3 percent from one year ago. Regionally, price declines were the sharpest in the West region, falling 16.0 percent. The remaining regions also experienced price declines, but much more modestly, with the Northeast showing a 2.4 percent drop, the Midwest with a less than a one percent decline, and the South falling 4.3 percent. Given that Florida is undergoing a sharp price decline, the prices are essentially flat for the South region outside of Florida.

Inventories at the end of May fell modestly. There were 4.49 million homes listed for sale - which is a decrease of 1.4 percent from the prior month. In the latest month, the inventory represents a 10.8 months-supply at the current sales pace. It is still high - and I would even use the term uncomfortably high - but at least it is moving in the right direction.

Regarding the single-family versus the condo market, single family home sales rose 1.6 percent while condo sales rose 5.5 percent. Single family home prices declined 6.8 percent while condo prices declined 2.1 percent.

Today's data continues the trend from last month with home sales rising in distressed markets where prices have fallen significantly. The greatly improving affordability conditions are drawing homebuyers back into the market place. Some of these markets include:

• Battlecreek, MI
• Sarasota, FL
• Las Vegas
• Orange County
• Riverside
• Sacramento

Markets with notable sales declines were in regions that were holding on well in 2007:

• Seattle
• Raleigh
• San Antonio
• Salt Lake City

These markets continue to have generally healthy market conditions with home prices either stable or still rising, much lower foreclosure rates, and solid local job market conditions.

Today's data of 4.99 million follows the pattern of essentially stable sales but at soft levels. In fact the average sales pace in the past nine months (the period following the credit crunch in August 2007 and near disappearance of subprime lending from that point) is 5 million.

Our data on pending home sales released two weeks ago was more encouraging with a bigger gain, and we may see the trickling of that into the next month's existing home sales figures.

While existing home sales, comprising 85 percent of the total home sales market, are showing stabilization trends, anticipate continued declines in new home sales. Home builders have rightly cut back production to trim inventory. Therefore there are few new homes reaching the marketplace and far fewer newly constructed home sales.

The existing home sales index captures all home sales through MLSs. We estimate about one-third of current sales are short sales or REO sales.

A month ago, NAR released April's figures showing a home price decline of 8 percent. The lagged data collection from OFHEO and Case-Shiller was released just yesterday regarding April, and as usual showed price declines of much lower and higher respectively than what NAR had reported. OFHEO data, which covers mostly only the conforming loans with very little subprime and no jumbo loan input, showed a price decline of only 4 percent. Case-Shiller data, which is heavily influenced by foreclosed properties and subprime loans, showed a price decline approaching 16 percent. Given that today's NAR data for May shows a slight lowering in the price decline, we can anticipate that the next release of OFHEO and Case-Shiller price indices to show a slight moderation as well.

In summary, existing home sales rose modestly in May on a nationwide basis. But some local markets are seeing a significant rise in sales - induced by falling home prices. Inventory fell modestly. The national median home price declined again, though to a lesser degree than in prior month.

For the full data set, read more >

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

Comments? Questions? E-mail NAR Research.

NAR members, learn how you can add this commentary to your Web site, blog, or newsletter. Read more >