A second shoe dropped on the housing front this morning, with the release, some 30 minutes into the trading day, of a report from the National Association of Realtors showing that sales of existing homes fell modestly in May. (Existing homes sales are completed transactions, that include single-family homes, townhouses, condominiums, and co-ops.) The falloff in sales was a surprise, as the consensus had been for volume to have increased by 5.5% last month. Specifically, May sales fell from an upwardly revised 5.79 million annual unit level in April to 5.66% last month. A gain, to 6.10 million units on an annualized basis, had been the expectation. Home prices rose slightly, though, in a positive development, while housing inventories receded a bit, in another favorable trend, although the average 8.3 month supply of unsold homes is certainly a worry. The report was a mixed one, overall, albeit worse than expected.
This latest decline was critical for two reasons. First, it was the initial report on existing home sales since the April 30th expiration of the home buyer tax credit. Second, this report followed, by just six days, figures from the Commerce Department, which showed that housing starts, building permits, and housing completions all fell in May. Apparently, the home buyer tax credit was an inducement for first-time buyers, who tend to be younger and less well-to-do than repeat buyers.
As for the report, itself, it showed very modest gains in the West and South, flat results in the Midwest, and an 18.3% plunge in the Northeast. The aggregate level was still an improvement over the 4.75 million annual-unit total in May of 2009. However, the month-to-month trend was disturbing, especially on the heels of the aforementioned dour construction report issued last Wednesday.
How problematic is the recent falloff? We are not overly worried at this juncture, as we believe that the trough in the housing cycle is now well in the past and that a decline to new lows is not likely due to the somewhat better overall economic outlook, historically low mortgage rates, a gradually improved employment outlook, and ongoing signs of stabilization in housing prices, which will start to tempt some heretofore gun-shy buyers. Nevertheless, the latest trend is of some concern, as the recovery in housing is very fragile, and even a slight interruption in the growth trend for the economy could cause the comeback to stall for a period of months or more.
Meanwhile, the stock market, which began the day higher on some optimism regarding the economy and a hoped-for gain in existing home sales, fell back after the report's issuance, and prices now are mixed as we head toward the noon hour along the East Coast. There may also be some angst ahead of tomorrow's report on sales of new homes for May, which are also due out some 30 minutes into the trading day, but which are forecast to be notably lower than in the prior month.