ECONOMIC UPDATE

Dominating last week's financial news was a precipitous plunge in sales of both new and existing homes for the month of July.
Sales of existing single-family homes, townhomes, condominiums and co-ops during July dropped a shocking 27.2 percent to a seasonally adjusted annual rate of 3.83 million units, down from June's downwardly revised rate of 5.26 million units, according to figures from the National Association of REALTORS®. Existing housing sales in July were the lowest figures on record since NAR's existing home sales data began in 1999.
Single-family home sales (the lion's share of existing home sales) dropped 27.1 percent to a seasonally adjusted annual rate of 3.37 million in July, down from 4.62 million in June. This was the lowest single-family home sales rate since May 1995, according to NAR.
Once again, the end of the homebuyer tax credit incentive was chalked up as the main driver in July's plummet.
"Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired," said Lawrence Yun, NAR chief economist, who added that the poor sales pace will likely continue for a few months. "Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September."
While July's existing home sales were off by an alarming amount, prices continued to hold their line. The median price for all types of existing homes was $182,600 in July, up 0.7 percent from a year ago.
Despite the fact that total housing inventory at the end of July increased 2.5 percent to 3.98 million existing units, which represents a 12.5-month supply at the current sales pace, Yun does not predict a tapering in home prices.
"Over the short term, high supply in relation to demand clearly favors buyers," he said. "However, given that home values are back in line relative to income, and [given] very low new-home construction [rates], there is not likely to be any measurable change in home prices going forward."

Sales of new single-family homes during July dropped to a record-low rate of 276,000, which was 12.4 percent below June's revised rate of 315,000, according to figures released last week by the Census Bureau. This is the lowest rate on record since 1963.

In terms of pricing and inventory, the median sales price of new houses sold during July was $204,000 and the average sales price was $235,300. The estimate of new houses for sale at the end of July was 210,000, representing a 9.1-month supply at the current sales rate.

"A double-digit drop suggests to me that there wasn't just a tax effect at work in July, but a change in sentiment, a change in the willingness to make such a big purchase," FTN Financial chief economist Christopher Low told the Los Angeles Times. "It is especially surprising given where mortgage rates were. It is just a reminder of how much work there is still left to do before housing can be deemed healthy again."

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