Existing Home Sales Fell to Lowest Level of 2011 in May

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Americans worried about high gas prices aren't buying as many houses

600 home sales REUTERS Joshua Lott.jpg

As the economy slows, the already anemic home buying demand appears to be weakening even further. Existing home sales fell 3.8% in May to the annualized rate of 4.81 million, according to the National Association of Realtors. That's the fewest sales since November. This isn't good news for a housing market on which copious distressed properties continue to be dumped.

Here's the historical chart for a little perspective on May's numbers:

existing home sales 2011-05.png

You can see that home sales had improved a bit since late December, when they rose above the pace of 5 million for the first time since June 2010. But demand had been uneven through April, and now sales are the lowest since November. In general though, May's performance appears to fit into the trend of sales hovering at or a little below the 5 million mark.

Despite weaker sales, inventory actually fell by 1.0% to 3.72 million homes. But despite that decline, the months of supply increased to 9.3 from 9.0 in April, since the pace of sales slowed last month. Here's the chart:

home inventory 2011-05.png

The NAR report also provides median sale price. In May, it was $166,500. While that's higher than it was in April, this number is not seasonally adjusted. As a result, considering it in reference to May 2010's median price is more meaningful. By that measure, prices were down 4.6% last month.

Here's NAR chief economist Lawerence Yun's ever-optimistic comment on the bad numbers:

Current housing market activity indicates a very slow pace of broader economic activity, but recent reversals in oil prices are likely to mitigate the impact going forward. The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year.

He also complains that the demand isn't as weak as these results indicate, but that banks "overly restrictive" underwriting standards are also to blame. The over-correction in loan standards that he complains about doesn't add up, however. Banks have a strong reason to leave underwriting criteria as loose as is reasonable: they've got hundreds of thousands of foreclosures to sell. Allowing inventory to grow by being too restrictive will just cause prices to decline further, making banks' losses more severe.

For whatever reasons, home sales remain weak. Yun is right that if commodity prices recede in the months that follow, home sales should improve a bit -- as should the rest of the economy. But we haven't seen any particularly dramatic decline in gasoline prices yet. At this point, home sales will likely follow the trajectory of the broader U.S. economy.

Image Credit: REUTERS/Joshua Lott

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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