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The Existing Home Sales Report Is In. Ugh!

We want to begin by saying there were absolutely no surprises in this month’s National Association of Realtors Existing Home Sales Report. Experts were calling for a dramatic fall off in volume and a substantial increase in month’s supply of inventory. Everyone now realizes that the tax credit actually pulled more demand forward than it created. The inventory of unsold homes is increasing as the shadow inventory of distressed properties is beginning to be released by the banks.

The report just confirmed what we already knew. Yet, it was still difficult to read.

What the report said:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009. Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995 … Existing single-family home sales fell in all 20 areas from a year ago.

The national median existing-home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

What the experts are saying:

Mark Zandi, chief economist at Moody’s Analytics:

“We probably, almost assuredly, will experience more house price declines. I think that would qualify as a double dip.”

Calculated Risk:

“Usually July is the peak month for inventory. This level of inventory is especially bad news because the reported inventory is already historically very high, and the 12.5 months of supply in July is far above normal. The months-of-supply will probably decline in August as sales rebound slightly and some sellers take their homes off the market, but I expect double digit months-of-supply for some time – and that will be a really bad sign for house prices.

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don’t expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.”

Real Trends:

“It is our belief that total sales volume in the second half of 2010 will be down versus the second half of 2009 (in many markets, we believe that decline will be sharp enough so that full-year 2010 will be less than full-year 2009) … Although these figures aren’t likely to fill anyone’s heart with joy, they should not be a huge surprise to anyone.  There’s no doubt that the next 6 to possibly 18 months will not be for the faint of heart but those that will fare best are those that enter this with eyes wide open and plan accordingly.”

The Bottom Line

All real estate is local. Contact a professional agent that is seen as an expert in your area. But remember, in most regions, demand is down and supply is up. There will continue to be downward pressure on home prices.


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