Existing home sales portend another bad year for the housing market

Sales of previously owned homes dropped in June behind a spike in contract cancellations, signaling what could possibly be the worst year for the housing sector since the market crashed. 

Existing home sales fell 0.8 percent last month to a seasonally adjusted annual rate of 4.77 million, down from 4.81 million in May, the National Association of Realtors said Wednesday. 

The new totals are well below the 6 million homes each year that economists say represents a healthy housing market.

The latest sales figures are 8.8 percent below the 5.23 million-unit level in June 2010, and represent sales that are lagging behind 2010 levels through the first half of the year. 

Last year, 4.91 million homes were sold, the worst sales in 13 years as sales have fallen in four out of the past five years since the housing sector crashed.

Although mostly unexplained, potential buyers canceled 16 percent of contracts last month, up from 4 percent in May the highest level since such records began being kept more than a year ago.  

Some buyers may have canceled purchases because of tight credit and after low appraisals, according to NAR.  

"However, economic uncertainty and the federal budget debacle may be causing hesitation among some consumers or lenders,” Lawrence Yun, NAR's chief economist, said.

The White House and congressional leaders appear to be inching closer to a deal that would allow for an increase in the debt ceiling to avoid default as an Aug. 2 deadline looms.

Prices were up slightly while first-time buyers fell to a smaller share of the market.

First-time buyers purchased 31 percent of homes in June, down from 36 percent in May. Those buyers represented 43 percent of the market in June 2010, boosted by a homebuyers tax credit. 

Investors accounted for 19 percent of purchase activity in June, unchanged from May; they were 13 percent in June 2010.

The national median existing-home price for all housing types was $184,300 in June, up 0.8 percent from June 2010. 

Distressed homes — foreclosures and short sales generally sold at deep discounts — accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.

Foreclosures have flooded the market, providing good deals for some potential homebuyers but hindering new construction. 

Mortgage rates for a 30-year, conventional, fixed-rate mortgage were 4.51 percent in June, down from 4.64 percent in May. The rate was 4.74 percent in June 2010, according to Freddie Mac.

“With record high housing affordability conditions thus far in 2011, we’d normally expect to see stronger home sales,” said NAR President Ron Phipps.

“Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals. Although proposals being considered in Washington could effectively put more restrictions on lending, some banking executives have hinted that credit may return to more normal, safe standards in the not-too-distant future, but the tardiness of this process is holding back the recovery.”

Phipps added that lower mortgage loan limits, due to go into effect Oct. 1, already are having an effect. 

“Some lenders are placing lower loan limits on current contracts in anticipation they may not close before the end of September," he said. "

As a result, some contracts may be getting canceled because certain buyers are unwilling or unable to obtain a more costly jumbo mortgage.” 

Total housing inventory at the end of June rose 3.3 percent to 3.77 million existing homes available for sale, which represents a nine- and a half-month supply at the current sales pace, up from an about nine-month supply in May.

Cash transactions, usually investors, accounted for 29 percent of sales in June, down from 30 percent in May and up from 24 percent in June 2010.

The balance of sales was to repeat buyers, which were a 50 percent market share in June, up from 45 percent in May.

Single-family home sales were unchanged at a seasonally adjusted annual rate of 4.24 million in June, but are 7.4 percent below a 4.58 million pace in June 2010. The median existing single-family home price was $184,600 in June, up 0.6 percent from a year ago.

Existing condominium and co-op sales fell 7 percent to a seasonally adjusted annual rate of 530,000 in June from 570,000 in May, and are 18 percent below the 646,000-unit level a year ago. The median existing condo price was $182,300 in June, up 1.8 percent from June 2010.

Regionally, existing home sales in the Northeast fell 5.2 percent to an annual pace of 730,000 in June and are 17 percent below June 2010. The median price in the Northeast was $261,000, up 3.1 percent from a year ago.

Existing-home sales in the Midwest rose 1 percent in June to a pace of 1.04 million but are 14 percent below a year ago. The median price in the Midwest was $147,700, down 5.3 percent from June 2010.

In the South, existing-home sales increased 0.5 percent to an annual level of 1.86 million in June but are 5.6 percent below June 2010. The median price in the South was $159,100, down 0.1 percent from a year ago.

Existing-home sales in the West declined 1.7 percent to an annual pace of 1.14 million in June and are 2.6 percent below a year ago. The median price in the West was $240,400, up 9.5 percent from June 2010.