Existing home sales dropped to a 4.37 million unit rate in June, down from a 4.62 million rate in May. Sales were revised up slightly in May, which blunts the blow. A shortfall in the inventory of foreclosures and short sales on the market are the primary reasons that realtors blame for the drop, as this has taken some investors out of the mix. Moreover, banks are complaining that it has recently become more difficult to sell their foreclosed properties because of disputes about who holds the titles to specific properties; cancellations of foreclosures, in particular, which were once nonexistent, have surged to about 18% of sales. Cancellations were previously driven by a shortfall in appraisals, which is still occurring, but is no longer being reported.
Prices for condos declined at a faster pace than single-family home sales. The largest declines were in the Northeast and the West. The West is a place where distressed sales were particularly important in moving inventory.
The median price of an existing home rose to $189,400 in June, up almost 8% from a year ago. This increase was mostly because of the mix of sales rather than a sharp appreciation, as fewer sales were distressed and sold at deep discounts compared to a year ago. The number of first-time buyers also slipped as a share of the market, which means that there was some trade-up activity, perhaps one glimmer of hope in the market. Indeed, there are reports of bidding wars breaking out in some regions as turnkey properties are hard to find and prices have overshot on the downside.
That said, structural problems in the mortgage market – title problems, capacity constraints, high down payments, a shortfall in demand for mortgage-backed securities (MBS), which limits the ability of banks to remove risks associated with underwriting mortgages on the market – will continue to constrain sales relative to demand even as the demand for housing continues to rise. These conditions are forcing more people than we have seen in the past to rent instead of buy and is putting upward pressure on rents.
Bottom Line: The housing market continues to heal unevenly, and in fits and starts. Structural problems in the mortgage market are the primary problem and one of many reasons the Federal Reserve continues to maintain its support for MBS.