Existing-Home Sales Down, but Inventory Dips

Decline in the supply of unsold homes is the report's "encouraging detail."


The National Association of Realtors on Wednesday released its report on existing-home sales in August. Details below:

From NAR:

Nationally, existing-home sales—including single-family, townhomes, condominiums and co-ops—declined 2.2 percent to a seasonally adjusted annual rate [1] of 4.91 million units in August from an upwardly revised pace of 5.02 million in July, but are 10.7 percent below the 5.50 million-unit pace in August 2007...

The national median existing-home price for all housing types was $203,100 in August, down 9.5 percent from a year ago when the median was $224,400...

Total housing inventory at the end of August fell 7.0 percent to 4.26 million existing homes available for sale, which represents a 10.4-month supply at the current sales pace, down from a revised 10.9-month supply in July.

Here's what Global Insight economist Patrick Newport had to say about the report:

Existing home sales have hardly moved in nine months, averaging 4.93 million (annualized) since December 2007. Two offsetting forces have been at work. On the one hand, plunging prices in the West have spurred a 21% sales rebound from their October 2007 low. On the other hand, demand in the other three regions has continued to fall because of the weak economy and tight credit.

Affordability is improving because of falling house prices and lower mortgage rates. Indeed, mortgage rates have fallen 75 basis points in the past five weeks. About half of the decline can be attributed to a general decline in long-term interest rates, and the other half to the government's effective takeover of Fannie Mae and Freddie Mac, which has reduced the spread lenders tack on to the loan rate to account for risk.

Although improved affordability, going forward, we think that sales will drift down in the coming months as the economy slips into recession, and as lending contracts because of bank consolidation.

One encouraging detail is the drop in the inventory yardstick. The months' supply of existing single-family homes fell four notches to 10.0 months, the second straight monthly decline. The decline merits a small round of applause, however, since, normally, the inventory yardstick is about 5 months.