Mediocre Home Sales Continue in May 2011

If one has low expectations, any data will seem better.  May 2011 existing homes sales continues its mediocre start to the 2011 buying season.

This data is compared against the first time home buyers incentive last year.  So, in this beauty contest – May 2011 data comes off looking homely.   Later in 2011 when compared to the home buying collapse following expiry of the first homebuyers incentive in 2010 – existing home sales will look good.

The reality is that home sales in May 2011 is not as bad as it appears, and beginning in July 2011 – will not be as good as it will comparatively appear.  Pieces of the National Association of Realtors press release:

Existing-home sales were down in May as temporary factors and financing problems weighed on the market, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8 percent to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3 percent below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.

Lawrence Yun, NAR chief economist, said temporary factors held back the market in May, as implied from prior data on contract signings. “Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May,” he said. “Current housing market activity indicates a very slow pace of broader economic activity, but recent reversals in oil prices are likely to mitigate the impact going forward. The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year.”

Yun said the market also is being constrained by the lending community. “Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards,” he said. “There’s been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction – this overreaction is clearly holding back the recovery.”

There were notable regional differences in home sales. “A large decline in Midwestern existing-home sales can be attributed partly to the flooding and other severe weather patterns that occurred, but this also implies a temporary nature of soft market activity,” Yun explained.

The national median existing-home price2 for all housing types was $166,500 in May, down 4.6 percent from May 2010. Distressed homes3 – typically sold at a discount of about 20 percent – accounted for 31 percent of sales in May, down from 37 percent in April; they were 31 percent in May 2010.

“The price decline could be diminishing, as buyers recognize great bargain prices and the highest affordability conditions in 40 years; this will help mitigate further price drops,” Yun said.

“Home prices are rising or very stable in local markets with improved employment conditions, such as in North Dakota, Alaska, Washington, D.C., and many parts of Texas,” Yun noted.

Home prices are down 2.9% year-over-year (unadjusted) – however the seasonal spring bounce is underway.  There is no indication that the bounce has different characteristics than previous years.

The press release continues:

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.64 percent in May, down from 4.84 percent in April; the rate was 4.89 percent in May 2010. “Although low mortgage interest rates are welcome, they are less meaningful compared to the tightness of loan underwriting standards,” Yun noted.

Total housing inventory at the end of May fell 1.0 percent to 3.72 million existing homes available for sale, which represents a 9.3-month supply at the current sales pace, up from a 9.0-month supply in April.

Inventory is down 4.4% (unadjusted) from last year – this is significant but the meaning escapes.  It implies that there is less selection.

Home inventory levels have generally been trending up slightly since the beginning of 2010.  May 2011 data bucks the trend.  Final take from the NAR press release:

All-cash transactions stood at 30 percent in May, down from 31 percent in April; they were 25 percent in May 2010; investors account for the bulk of cash purchases.

First-time buyers purchased 35 percent of homes in May, down from 36 percent in April; they were 46 percent in May 2010 when the tax credit was in place. Investors accounted for 19 percent of purchase activity in May compared with 20 percent in April; they were 14 percent in May 2010.

Econintersect had projected home sales at 420,000 (analysis here), while the actual number was 458,000.

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