US: Existing home sales likely to have retrenched

Research Team at RBS, notes that the US existing homes sales showed good momentum in the first half of the year, climbing to a seasonally adjusted annualized level of 5.57 million units in June, the best reading since February 2007.

Key Quotes

“Sustained declines in mortgage rates combined with decent job gains have aided resales. The pending home sales index (which tracks contract signings and thus typically leads contract closings/resales by a month or two) jumped to a decade-high in April. In the last two months, however, the pending home sales index has cooled, suggesting at least a temporary pause in the growth of existing home sales. Thus, in July, we look for existing home sales to have retrenched somewhat, slipping perhaps to an annualized level of 5.43 million units.

On the supply side, inventories have failed to show any meaningful improvement. End-of-period inventories jumped from 1.96 million units in March to 2.12 million in April but have barely budged since then. The June level of homes available for sale was 2.12 million units, which translated into only 4.6 months of supply at the June selling rate, well below the 6 months typically associated with a market in equilibrium

The National Association of Realtors noted again last month that, “Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale.” In this way, the lack of supply may continue to work against the pickup in demand associated with lower mortgage rates.”

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