Sales of previously owned homes in the U.S. fell in May to the lowest level in almost four years, reinforcing concerns about a protracted housing slump.
Purchases declined 0.3 percent to an annual rate of 5.99 million, from a revised 6.01 million the prior month, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to a record.
The housing recession, the worst since 1991, is the biggest threat to an economy that's otherwise showing signs of recovering from a yearlong slowdown. The growing number of homes on the market and higher interest rates may further discourage buyers, economists say.
``The slow bleed in housing continues,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The inventory adjustment is going to be slow and painful. This means we're in for more pressure on prices and more pressure on construction.''
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The supply of homes for sale increased 5 percent to 4.43 million, the most ever. At the current sales pace, that represented 8.9 months' worth, the highest since June 1992 and up from 8.4 months' worth at the end of the prior month.
The median price of an existing home fell 2.1 percent last month from a year ago to $223,700, the 10th consecutive month of year-over-year declines, the Realtors group said.
There are several points to make here:
1.) Inventory is increasing at absolute levels to "the most ever". Excess supply = decreasing prices. In addition,
2.) Prices dropped 2.1% from year ago levels, but inventory still increased. That means prices are going to have to drop a lot more to clear the inventory.
3.) It's interesting that sellers aren't taking their homes off the market because of lack of interest. Instead, more sellers are entering the market. While I don't have any proof of this, I have to think the only reason inventory is increasing is because people have to sell rather than want to sell. Again -- that's pure conjecture. But if you have something you want to sell but don't need to sell and no one is interested in buying what you want to sell, you usually don't offer it for sale.
4.) Either buyers or sellers are unrealistic about selling prices right now. Simply put, inventory isn't moving. Yet no one seems to be adjusting their prices to levels that do move inventory. At some point, we're going to see either large price drops to move inventory or people taking their houses off the market or a combination of both.
5.) Finally, we're just starting to see the effects of tightening lending standards right now. Fewer buyers = less demand = lower prices.
