April 2011 Existing Home Sales A Mediocre Start to the High Buying Season

When reviewing the existing home sales data, looking at any one particular month is dangerous.  This month the industry cheerleaders, the National Association of Realtors (NAR) called home sales down 0.8% – this contraction is subject to the eye of the beholder.

Existing-home sales slipped in April, although the market has managed six gains in the past nine months, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.

Lawrence Yun, NAR chief economist, said the market is underperforming. “Given the great affordability conditions, job creation and pent-up demand, home sales should be stronger,” he said. “Although existing-home sales are expected to trend up unevenly through next year, unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations.”

A parallel NAR practitioner survey shows 11 percent of Realtors® report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in April, unchanged from March; the rate was 5.10 percent in April 2010.

“Although sales are clearly up from the cyclical lows of last summer, home sales are being held back 15 to 20 percent due to the very restrictive loan underwriting standards,” Yun said.

All-cash transactions stood at 31 percent in April, down from a record level of 35 percent in March; they were 26 percent in March 2010; investors account for the bulk of cash purchases.

The key elements of the press release are highlighted.  In Econintersect’s view, using unadjusted data, there is nothing remarkable up or down in the data.  In general, because of seasonality, the quantity of homes for sale are up and the spring surge is showing home prices increasing.

Whether you consider home sales up or down will involve how much credence you want to put in stimulus effected data.  Ignoring stimulus years, the count of home sales is improving.  The market is in better shape than 2008 – but that is not saying much.

Econintersect forecast April home sales at 455,000 and the actual was 444,000.

Overall, this is a weak start to the high buying season.  This could be indicating at least one more year of mediocre home sales and pricing.

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