Is the Housing Recovery Showing More Cracks?

The real estate market has rebounded from its worst levels during the Great Recession, and remains one of the strongest areas of the economy. However, existing-home sales in June were worse than expected.

The National Association of Realtors announced on Monday that total existing-home sales, which are completed transactions including single-family homes, town-homes, condos, and co-ops, fell 1.2 percent to a seasonally adjusted annual rate of 5.08 million units last month. In comparison, May showed a downwardly revised 5.14 million units.

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Economists were expecting sales to rise to about 5.26 million units in June, representing the biggest miss in a year, and raising more concerns about the housing recovery. On the positive, existing-home sales are still up 15.2 percent from the 4.41 million-unit level seen a year earlier. Sales are near their highest level since the tax credit period of November 2009, when sales spiked to 5.44 million units. Total sales have now been above year-ago levels for 24 consecutive months.

Lawrence Yun, NAR chief economist, cautions that some areas of the country will suffer more than others from higher mortgage rates. He explains, “Affordability conditions remain favorable in most of the country, and we’re still dealing with a large pent-up demand. However, higher mortgage interest rates will bite into high-cost regions of California, Hawaii, and the New York City metro area market.”

Single-family home sales in June dropped 1.1 percent to a seasonally adjusted annual rate of 4.50 million units, compared to 4.55 million units in May. On a regional basis, existing-home sales in the Midwest remained unchanged at a pace of 2.03 million in June. However, sales in the South fell 1.5 percent, while the Northeast and West both posted declines of 1.6 percent.

Low inventory levels continue to support home prices. The national median existing-home price for all housing types jumped 13.5 percent to $214,200 in June, compared to a year earlier. This is the 16th consecutive month of year-over-year price gains. The last time this occurred was from February 2005 to May 2006, during the housing bubble.

Total housing inventory at the end of June edged 1.9 percent higher, to 2.19 million existing homes available for sale, representing a 5.2-month supply. Compared to last year, listed inventory is down 7.6 percent.

In morning trading, home-improvement stocks, such as Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW), both traded flat. Home builders, such as Lennar (NYSE:LEN) and Toll Brothers (NYSE:TOL), both declined more than 1 percent.

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