US existing home sales dipped in May

WASHINGTON, DC: Existing-home sales were down in May as temporary factors and financing problems weighed on the market, according to the US National Association of Realtors (NAR).

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8% to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3% below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.

Lawrence Yun, NAR chief economist, said temporary factors held back the market in May. "Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May," he said. "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."

Yun said the market also is being constrained by the lending community. "Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards," he said. "There's been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction — this overreaction is clearly holding back the recovery."

There were notable regional differences in home sales. "A large decline in Midwestern existing-home sales can be attributed partly to the flooding and other severe weather patterns that occurred, but this also implies a temporary nature of soft market activity," Yun explained.

The national median existing-home price for all housing types was US$166,500 (RM507,825) in May, down 4.6% from May 2010. Distressed homes — typically sold at a discount of about 20% — accounted for 31% of sales in May, down from 37% in April; they were 31% in May 2010.

"The price decline could be diminishing, as buyers recognise great bargain prices and the highest affordability conditions in 40 years; this will help mitigate further price drops," Yun said.

"Home prices are rising or very stable in local markets with improved employment conditions, such as in North Dakota; Alaska; Washington, DC; and many parts of Texas," Yun noted.

NAR president Ron Phipps — broker-president of Phipps Realty in Warwick, Rhode Island — said a number of proposals being considered in Washington could further jeopardise the housing recovery. "We're concerned about the flow of available capital, including a possible rule that would effectively raise minimum downpayment requirements to 20%," he said. "We don't need to throw the baby out with the bath water — increasing downpayment requirements would effectively shut many qualified families out of the market. What we critically need is a return to the basics of providing safe mortgages to creditworthy buyers willing to stay well within their budget."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.64% in May, down from 4.84% in April; the rate was 4.89% in May 2010. "Although low mortgage interest rates are welcome, they are less meaningful compared to the tightness of loan underwriting standards," Yun noted.

Total housing inventory at the end of May fell 1.0% to 3.72 million existing homes available for sale, which represents a 9.3-month supply at the current sales pace, up from a 9.0-month supply in April.

First-time buyers purchased 35% of homes in May, down from 36% in April; they were 46% in May 2010 when the tax credit was in place. Investors accounted for 19% of purchase activity in May compared with 20% in April; they were 14% in May 2010.

Single-family home sales declined 3.2% to a seasonally adjusted annual rate of 4.24 million in May from 4.38 million in April, and are 15.4% below a surge to 5.01 million one year ago. The median existing single-family home price was US$166,700 in May, down 4.5% from May 2010.

Existing condominium and co-op sales fell 8.1% to a seasonally adjusted annual rate of 570,000 in May from 620,000 in April, and are 14.7% below the 668,000-unit pace in May 2010. The median existing condo price was US$165,400 in May, which is 5.8% below a year ago.