Existing home sales in July plummeted to a the lowest level since 1995, as the expired tax credit that helped to fuel housing earlier in the year and shift some sales forward no longer provided much support.
The National Association of Realtors reported that existing homes sales fell 27.2% to an annualized rate of 3.83 million units, the biggest monthly decline on record and far below the consensus forecast offered by Bloomberg of 4.65 million units.
NAR chief economist Lawrence Yun said a soft sales pace likely will continue for a few additional months. “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said.
“However," Yun added, "Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs."
The recently-expired tax credit did shift sales that otherwise would have closed in the summer months into the late spring.
Still, Yun's cautious optimism that sales could "pick up quickly," provided the economy "consistently adds jobs" may be a tall order for a recovery that has slowed significantly in recent months.
The replacement cycle of inventory rebuilding seems to have run its course, while a brief surge in spending among consumers has been replaced by a renewed interest in savings. In addition, jobless claims are sitting at 2010 high, underscoring the lack of confidence among many companies.
Today's release was just plain awful and underscores how fragile the current economic recovery is. If there is a silver lining, recent data from the US MBA Purchase Index, which takes a weekly look at mortgage applications and foreshadowed the plunge in housing sales (same holds true for Pending Home Sales Index), have been showing nascent signs of stabilizing at a low level.
Mortgage rates are at rock-bottom levels. But until the overhang from foreclosures abates, consumer confidence picks up and the recovery makes a dent in the jobless rate, the best we may be able to hope for in the near term might just be a soft bottom in housing.
For more information and a look at current issues affecting the economy: Please see Tomorrow's Economy Today. Another perspective on today's disappointing housing report is also available.
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