Housing Inventory Declines but Slow Sales Pace Adds Staying Power

There were 3.65 million existing-homes available for sale at the end of July, according to the ""National Association of Realtors"":http://www.realtor.org (NAR).
[IMAGE] That tally is down 1.7 percent from June, but the time it will take to clear the supply from the market has lengthened from 9.2 months in June to 9.4 months in July, because sales have slowed considerably over the summer months.

NAR ""reported Thursday"":http://www.realtor.org/research/research/ehsdata that completed sales transactions for existing homes fell 3.5 percent in July to a seasonally adjusted annual rate of 4.67 million. That's down from an annual rate of 4.84 million in June.

NAR says the latest numbers are ""notably higher"" than a year earlier, in fact 21 percent above the 3.86 million unit pace in July 2010. But when you put it into context, July of last year represented a cyclical low for homes sales as it bore the immediate brunt of the expiration of the homebuyer tax credit.

In fact, according to a Twitter posting from the _Wall Street Journal's_ Nick Timiraos, July 2010 was the worst July for home sales since 1997; this July is the second worst.

NAR says the national median existing-home price for all housing types was $174,000 in July, down 4.4 percent from July 2010.

Short sales and REOs, typically offloaded at a discount, accounted for 29 percent of last month’s sales, compared with 30 percent in June and 32 percent in July 2010. As recently as April, distressed properties claimed a 40 percent share of existing-homes sales.

NAR’s chief economist Lawrence Yun blames the declining sales volume on the “tug and pull” of today’s market. He says while housing affordability conditions this year has

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been the best on record, dating back to 1970, many buyers are being held back because of tight credit conditions.

“[B]anks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” Yun said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

NAR also noted that contract cancellations remain high. Sixteen percent of the trade group’s members reported that at least one sales contract fell through in July.

In addition, 9 percent of Realtors said a contract was delayed in the past three months due to low appraisals, and another 13 percent said a contract was renegotiated to a lower sales price because an appraisal was below the initially agreed amount.

Commenting on NAR’s latest report, Patrick Newport, U.S. economist for ""IHS Global Insight"":http://www.ihsglobalinsight.com , said, “Two months ago, the press release blamed weather and tight credit for the low figures. Last month, cancellations and (again) tight credit were the culprits. This month, cancellations (again) and low appraisal values are the culprits.”

Newport says weak demand is the key reason sales are down. He cites commentary from the ""Mortgage Bankers Association"":http://www.mortgagebankers.org that potential homebuyers seem hesitant to purchase in this highly volatile and uncertain environment, and he says if this is indeed the case, “we could see ugly existing home sales numbers in August.”

According to NAR, all-cash sales accounted for 29 percent of transactions in July, unchanged from June. Investors account for the bulk of cash purchases.

First-time buyers purchased 32 percent of homes in July, while investors accounted for 18 percent of total sales. The balance of sales was to repeat buyers, which were a 50 percent market share in July.

Paul Dales, senior U.S. economist with the research firm ""Capital Economics"":http://www.capitaleconomics.com, says the 3.5 percent month-over-month drop in existing-home sales for July shows that the housing market will not pull the U.S. economy out of its current malaise.

“In fact, with home sales now 13.5 percent below January's level is it becoming clear that the economic slowdown and drop in confidence is hitting housing demand,” Dales said.