Tight Inventories Stunt July Existing Home Sales

While new home sales appear to be moving full steam ahead, existing homes sales still face some tough roadblocks.

The National Association of Realtors yesterday said July existing home sales lost momentum after four consecutive monthly gains. NAR said total existing-home sales fell by 3.2 percent to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June. For only the second time in the past 21 months, sales fell (1.6 percent) from a year ago (5.48 million).

Single-family home sales decreased by 2.0 percent to a seasonally adjusted annual rate of 4.82 million in July from 4.92 million in June, and are now down by 0.8 percent from a year ago. The median existing single-family home price rose to $246,000 in July, up 5.4 percent from a year ago. Existing condominium and co-op sales fell by 12.3 percent to 570,000 units in July from 650,000 in June and by 8.1 percent from a year ago (620,000 units). The median existing condo price rose to $228,400 in July, 4.1 percent above a year ago.

By contrast, HUD and the Census Bureau this week reported July new home sales rose by a strong 12.4 percent in July.

Regionally, only the West saw improvement, rising by 2.5 percent to 1.23 million in July, but remained 0.8 percent below a year ago. The median price in the West rose to $346,100, 6.4 percent higher than a year ago.

In the South, existing home sales fell by 1.8 percent to 2.22 million from June and by 1.8 percent from a year ago. The median price in the South rose to $214,500, up 6.6 percent from a year ago. Sales in the Northeast fell by 13.2 percent to 660,000 from June and by 5.7 percent from a year ago. The median price in the Northeast rose to $284,000, 3.3 percent higher than a year ago. In the Midwest, sales fell by 5.2 percent to 1.28 million and were unchanged from a year ago. The median price in the Midwest rose to $194,000, up 5.0 percent from a year ago.

“Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” said NAR Chief Economist Lawrence Yun. “Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said home sales continue to have trouble accelerating, reflecting a lack of inventories, appraisal issues and affordability challenges.

“While the overhang of distressed properties has largely cleared the market, the housing crash still casts a large shadow over the housing market, making it difficult for the housing market to rev completely back up,” Vitner said. “Mortgage underwriting remains stricter than it has in the past and appraisals are often too cautious as well. New home construction has also been slow to come back online, worsening supply constraints.”

Moreover, Vitner added, the reluctance of homeowners to put their homes on the market has meant that home prices have risen much faster than income growth, which has reduced housing affordability, particularly in rapidly growing parts of the country such as the West Coast and parts of the Southeast. “The run-up in home prices has also made it difficult for appraisers to evaluate properties,” he said. “With many homes selling at or above asking prices, homes are often not appraising at high enough values to qualify for a mortgage, which has led to delays in closings.”

NAR said the median existing-home price for all housing types in July rose to $244,100, up 5.3 percent from a year ago ($231,800), marking the 53rd consecutive month of year-over-year gains. Total housing inventory at the end of July inched 0.9 percent higher to 2.13 million existing homes available for sale, but remained 5.8 percent lower than a year ago (2.26 million) and has now declined year-over-year for 14 straight months. Unsold inventory is at a 4.7-month supply at the current sales pace, up from 4.5 months in June.

The report said the share of first-time buyers fell to 32 percent in July, which is below last month (33 percent) but up from 28 percent a year ago. First-time buyers represented 30 percent of sales in all of 2015. All-cash sales represented 21 percent of transactions in July, down from 22 percent in June, 23 percent a year ago and the lowest share since November 2009 (19 percent). Individual investors purchased 11 percent of homes in July, unchanged from June and down from 13 percent a year ago. Seventy percent of investors paid in cash in July.

The report said distressed sales fell to 5 percent in July, the lowest level since NAR began tracking in 2008, down from 6 percent in June and 7 percent a year ago. Four percent of July sales were foreclosures; 1 percent were short sales. Foreclosures sold for an average discount of 18 percent below market value in July (11 percent in June), while short sales were discounted 16 percent (18 percent in June).

NAR said properties typically stayed on the market for 36 days in July, up from 34 days in June but down from 42 days a year ago. Short sales were on the market the longest at a median of 95 days in July, while foreclosures sold in 54 days and non-distressed homes took 34 days. Forty-seven percent of homes sold in July were on the market for less than a month.