The 27.2% plunge in sales of all existing homes in July 2010 to an annual rate of 3.830 million reinforces the top most position of the housing market in the Fed's priority list. Labor and credit markets are the two in the trio of markets being watched closely. The first-time homebuyer credit program provided a temporary lift to home sales in March and April 2010 and during September-November of 2009. Sales of existing single-family homes fell 27.1% to an annual rate of 3.370 million, the lowest reading since May 1995 (see chart 1). Regionally, sales of existing homes posted double digit declines across all four regions of the nation. The July decline in single-family home sales is the largest monthly drop since record keeping began in 1968 for sales of homes. Essentially, these numbers indicate that self-sustained home sales are not here, as yet.
Seasonally adjusted inventories-sales ratio of existing single-family homes rose to an 11.3-month supply in July from 8.2-month supply in June. The July reading of this ratio is the second highest on record, with the 11.6-month mark of November 2008 in the first place.
Despite the large inventory of unsold homes, the median price of an existing single family home increased 0.9% from a year ago, the second consecutive monthly gain, after a string of declines which began in July 2006. The reason for this inconsistency remains unclear.
The median price of an existing single-family home posted a small decline to $183,400 in July from $183,500 in June. On a year-to-year basis, the median price of an existing single-family home moved up 0.94% during July, after a 0.88% gain in the June.
Although mortgage rates are at historical lows, the elevated level of unemployment is holding back sales of homes. Support from improving employment conditions will be essential to turn the housing market around.
Historically, residential investment expenditures have led economic recoveries in the first year of recovery, excluding the 2001 upswing and the current recovery (see table 2). The latest housing market reports raise the probability of the second quarter gain in housing market activity being reversed in the near term.
