July 23, 2009

By Lawrence Yun, Chief Economist

After four difficult years of a housing recession, the market is clearly healing. Sales rose, inventories fell, and home prices declined less sharply than before. The 3 straight months of sales increases and the rise across all four major regions of country suggest a sustainable recovery ahead.

Existing home sales (single-family plus condos and coops) increased 3.6 percent in June to a seasonally adjusted annual rate of 4.89 million units from a 4.72 million unit pace in May (which is a downward revision from the 4.77 reported earlier). It is the first time in 5 years that a 3 month back-to-back gain was recorded. Compared to the same month one year ago, however, existing home sales were still down by 0.2 percent.

Regionally, home sales rose in all four major regions. The increases are above and beyond the normal upturn in sales each June. From May to June the seasonally adjusted sales changes were as follows:

• In the Northeast, existing home sales increased 2.5 percent
• In the Midwest, sales increased 0.9 percent
• In the South, sales increased 4.0 percent
• In the West, sales increased 6.4 percent

From one year ago, sales were higher only in the West region, up by 11 percent, driven by bargain hunters as prices have declined the most in the region, particularly in California, Nevada, and Arizona.

The national median existing home price in June was $181,800, which is a decline of 15.4 percent from one year ago. The prior month’s price data was revised up to $174,700 from the $173,000 figure that was reported earlier. Price declines have been closer to 17 percent in the early months of the year. Also note that the price is based on completed transactions and there are disproportionately higher numbers of sales on lower priced homes. So the price measurement partly captures the mix of homes rather than a genuine price decline. With this caveat noted, the transacted prices were lower in all four regions. Compared to one year ago, prices were lower by 5.9 percent in the Northeast, 9.1 percent in the Midwest, 11.9 percent in the South and 24.9 percent in the West.

Inventories at the end of June declined modestly by 0.7 percent to 3.823 million homes available for sale. It will now take 9.4 months to exhaust the inventory at the current sales pace. Though still elevated, inventory is steadily getting trimmed. From one year ago, inventory is lower by 670,000 or by 14.9 percent. The latest decline reflects 11 consecutive months of lower year-over-year inventory levels.

The condo market is rebounding from very depressed levels. Condo sales increased 14.0 percent while single family home sales advanced 2.4 percent and over the month. Condo prices were lower by 18.9 percent while single-family home price were lower by 15.1 percent. The months’ supply of inventory for single-family homes was trimmed to 8.9 months. For condos, there is a 13.4 months’ supply of inventory, still suggesting price decline pressure ahead in the condo market.

Activity is concentrated in the lower priced homes. Months’ supply has fallen to 6 months for those homes priced under $250,000, which would be consistent with a normal average home price appreciation of about 5 percent per year. The testaments of Realtors® on multi-bidding for foreclosed homes suggest people who are buying those homes in this price category could well see an equity gain by this time next year. However, inventory conditions remain very high for homes priced above $1 million with the latest data pointing to over 20 months supply nationwide. First-time home buyers accounted for 29 percent of all buyers based on a survey of Realtors® about their recent clients.

Despite the active conditions in the lower-priced homes, the number of distressed sales declined in June to 31 percent of all sales. Distressed property sales of either foreclosures or those requiring short sales had accounted for 45 to 50 percent of all sales in the early part of the year.

Last month, Realtors® raised an issue regarding the new appraisal process which went into effect in May. HVCC, as it is known, is a well-intentioned policy gone bad. According to a survey of Realtor® members in June, the bottom line results are:

• Consumers are paying higher fees
• Appraisers are getting less income
• The appraisal time to submit reports by appraisers to lenders has shortened
• The appraisal process for consumers to get information has lengthened
• Nearly 90 percent of Realtor® members and appraisers report some level of perceived reduction in appraisal quality
• 37 percent of home buyers and home sellers have experienced the fallout of a deal not going through because of the appraisal issues.

While this is, as I mentioned, a well-intentioned policy meant to get at the most accurate appraisals, the outcome has been poor for consumers, appraisers, for market recovery - and it needs to be revised. NAR would like to see a moratorium in the implementation of HVCC until all the kinks can be worked out. I want to see appraisals performed by local experts (rather than out-of-towners) and preferably those holding professionally recognized designations. School districts, unique housing features such as granite kitchen counters, and the like all need to be factored into the appraisals.

Given the lengthening time to close on a home sale today, the tax credit expiration date is fast approaching. A prospective homebuyer will probably need to initiate a contract to buy by mid-September in order to comfortably close by the November 30th expiration date. Many would-be first-time homebuyers may not make the deadline (stuck in a long-term lease, for example, or trying to save up for the down payment).

Not everything coming out of Washington works well. But the housing stimulus is clearly having its intended impact at a very modest cost. Additional time is needed to permit more to take advantage of the housing stimulus package. NAR is, therefore, actively lobbying to extend the tax credit till at least the middle of next year. Just as the housing market is showing a sign of revival, we do not want to encounter any possibility of a double-dip housing recession.

The housing market is healing. It is not only from existing homes sales data. Other housing measures also show stabilization. Home price measurement from the Federal Housing Finance Agency rose in the latest month. The construction of new single-family homes has risen for four straight months. Housing permits for single-family units, a good forerunner to starts figure, also have risen in the 4 of the past 5 months. The raw count of new homes for sale is at an 8-year low.

The bottom line: Good news, good news, and good news.

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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