Existing Home Sales Post Gain, But So Does Inventory

The Monday release of existing home sales numbers for July by the National Association of Realtors clearly illustrates the sort of double-edge sword now in play for real estate — sales have been picking up, yes, but inventory continues to grow as well. Existing-home sales rose in July to their highest level in five months, increasing 3.1 percent to a seasonally-adjusted annual rate of 5.00 million units in July from a downwardly revised level of 4.85 million in June. It should be noted, however, that July’s totals were also 13.2 percent lower than the 5.76 million-unit pace recorded in July 2007. Single-family home sales also rose 3.1 percent to a seasonally-adjusted annual rate of 4.39 million, but are 12.4 percent below the 5.01 million-unit level a year ago. Total housing inventory at the end of July rose 3.9 percent to 4.67 million existing homes available for sale, which represents an 11.2.-month supply at the current sales pace, up from a 11.1-month supply in June. The NAR said that the rise in supply resulted from a sharp increase in condo inventory, to a record 769,000; the single family supply actually declined. The sharp jump in condo supply is telling — and suggests that despite historically high inventory levels already being recorded, many would-be sellers have been sideline sitting and waiting for “better conditions”; condo sellers appear to have put their properties on the market in droves at the slightest hint that some properties were beginning to move. But the last thing the current housing market really needs right now is more inventory. Most economic experts agree that working through the already massive inventory overhang will be critical to any eventual housing recovery; if a large number of sellers are waiting to flood the market with their inventory, however, that recovery could be further off than most might think. Nonetheless, Lawrence Yun, NAR chief economist, inexplicably suggested home prices in some of the nation’s hardest-hit housing markets could soon increase. “Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. 11.2 months of supply is roughly double the amount of inventory that would characterize a normal housing market, according to various economists; irrespective of Yun’s cowtowing to NAR’s membership, it seems much more likely that prices will not increase so long as inventory continues to swell. Beyond anxious homeowners looking for the slightest reason to put their properties on the market, a swelling number of U.S. foreclosures also factor into the inventory and pricing mix, as well; as bank-owned properties flood many of the nation’s hardest-hit markets, the prices between so-called distressed inventory and more traditional retail inventory has been showing strong bifurcation. See an earlier HW story on this issue. The NAR has itself noted in previous press statements that REO resales have constituted as much as one-third of sales activity in the current cycle. Given that the NAR numbers do not differentiate between distressed and more traditional sales and inventory, all of the press positioning around “pent up demand” from potential buyers may be looking at the wrong economic input. Sidenotes: Inventory increases are pushing down prices, with the median existing single-family home price at $210,900 in July, down 7.7 percent from July 2007 … The national median existing-home price for all housing types was $212,400 in July, down 7.1 percent from a year ago … most regions posted monthly sales volume gains, with the exception of the South, which saw existing-home sales slipped 0.5 percent to an annual pace of 1.85 million in July, off more than 18 percent from one year ago.