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Existing Home Sales Decline In June

The National Association of Realtors reported on Wednesday that existing home sales fell 0.8 percent in June, putting the year on pace for the worst housing sales since the housing bubble burst.  Last month's decline put sales on a seasonally adjusted annual pace of 4.77 million homes, well below the 6 million pace economists say represents a health housing market.  June marks three straight months of declines in existing home sales, and through six months, this year's pace is behind last year's pace of 4.91 million homes sold, which was the market's worst performance in 13 years.  Sales have also fallen in four of the last five years.

The NAR said that a record number of people who had signed contracts to purchase homes backed out last month, and first-time buyers represented a smaller share of the market.  Single-family home sales actually held steady in June, but condo sales declined 7 percent.  Heftier down payment requirements, tougher mortgage qualifying criteria, and a shortage of suitable starter homes are keeping many would-be buyers on the fence.  Other, qualified buyers are hesitant to take the leap because they fear prices will drop even further.

First-time buyers accounted for just 31 percent of sales in June.  These buyers typically account for about half of all sales.  First-time buyers are critical to the housing market because they are more apt to stay in their homes for many years and their purchases of low and moderately priced homes allow the sellers to move up to costlier homes.  Another troubling development is the recently growing trend of buyers backing out at the last minute.  About 16 percent of home sales scheduled to close last month were canceled, four times the number in May and the highest number reported since such records have been kept.

Previously-owned homes are typically sold at a discount compared to new homes.  The median price for new homes in today's market is about 30 percent higher than that of existing homes, about two times higher than the normal markup.  Foreclosed properties and short sales, where a lender agrees to let a borrower sell his home for less than what is owed on the mortgage, accounted for about 30 percent of all home sales in June.  In a healthier market, this ratio is usually about 10 percent.  Making matters worse, there is a tremendous shadow inventory of foreclosures waiting in the wings.

Investors have become active again in the housing market, snapping up foreclosures and other steeply discounted properties.  Investor purchases accounted for about 19 percent of June sales.  Prices, meanwhile, increased in June.  The median price for homes sold increased almost 9 percent from May to June, to $184,300.  This increase, analysts say, was mostly due to seasonal factors that drove prices higher in the Northeast and West.

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