Home Sales Drastically Drop; Lowest in Over a Decade

Washington, D.C.--The first time homebuyer tax credit expired in May, and as expected, existing-home sales were sharply down in July, according to the National Association of Realtors.

Washington, D.C.–The first time homebuyer tax credit expired in May, and as expected, existing-home sales were sharply down in July, according to the National Association of Realtors.

Existing-home sales, which includes completed transactions of single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are now at the lowest level since the total existing-home sales series launched in 1999, and single-family sales—accounting for the bulk of transactions—are at the lowest level since May of 1995.

“Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired,” says Lawrence Yun, NAR chief economist. “A soft sales pace is likely to continue for the next few months.” Since May, contract signings have been notably lower and a pause period for home sales is likely to last through September. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”

Existing condominium and co-op sales fell 28.1 percent to a seasonally adjusted annual rate of 460,000 in July from 640,000 in June, and are 24.0 percent below the 605,000-unit level in July 2009. The median existing condo price was $176,800 in July, down 1.7 percent from a year ago.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009. Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.

“Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses,” Yun says. “Over the short term, high supply in relation to demand clearly favors buyers. However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward.”

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

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