Existing Home Sales declined by 3.8 percent to a seasonallyrnadjusted annual rate of 4.81 million in May from a negatively revised 5.00rnmillion pace in April. This is 15.3 percent below the 5.68 million annual pace reportedrnlast May (*when sales were surging tornbeat the deadline for the home buyer tax credit).   All regions saw annual contractions in bothrnthe pace of home sales and median prices.  And while totalrnhousing inventory was reduced by 1.0 percent to 3.72 million previously ownedrnhomes for sale,  it’s now going to takernlonger to sell those homes because the annualized pace of sales declined torn4.81 million. That works out to 9.3-months of supply, up from 9.0-months ofrnsupply in April. FYI: Supply of between six and seven months is viewed asrnan equilibrium range. Higher readings general point to lower home prices to better balance supply and demand.</p

Existing-home sales were down in May as temporary factors and financing problems weighed on the market, according to the National Association ofrn Realtors®. Lawrence Yun, NARrnchief economist, said temporary factors held back the market in May, as impliedrnfrom prior data on contract signings. “Spiking gasoline prices along withrnwidespread severe weather hurt house shopping in April, leading to soft figuresrnfor actual closings in May,” he said. “Current housing market activityrnindicates a very slow pace of broader economic activity, but recent reversalsrnin oil prices are likely to mitigate the impact going forward. The pace ofrnsales activity in the second half of the year is expected to be stronger thanrnthe first half, and will be much stronger than the second half of last year.” </p

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Excerpts from the Release…</p

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8 percent 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 percent below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.</p

Single-family home sales declined 3.2 percent to a seasonally adjusted annual rate of 4.24 million in May from 4.38 million in April, and are 15.4 percent below a surge to 5.01 million one year ago. The median existing single-family home price was $166,700 in May, down 4.5 percent from May 2010.<br /<br /Existing condominium and co-op sales fell 8.1 percent to a seasonally adjusted annual rate of 570,000 in May from 620,000 in April, and are 14.7 percent below the 668,000-unit pace in May 2010. The median existing condo price was $165,400 in May, which isrn 5.8 percent below a year ago.</p

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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.</p

Regionally, existing-home sales inrn the Northeast declined 2.5 percent to an annual level of 770,000 in Mayrn and are 13.5 percent below May 2010. The median price in the Northeast was $241,500, up 6.1 percent from a year ago.  Existing-home salesrn in the Midwest dropped 6.4 percent in May to a pace of 1.02 million andrn are 22.7 percent below a year ago. The median price in the Midwest was $136,400, which is 8.5 percent below May 2010. In the South, existing-home sales fell 5.1 percent to an annual level of 1.85 million in May and are 14.4 percent below May 2010. The median price in the South was $149,200, down 3.1 percent from a year ago.
Existing-homern sales in the West were unchanged at an annual pace of 1.17 million in May but are 10.0 percent lower than a year ago. The median price in the West was $192,300, which is 12.6 percent below May 2010.</p

“Home prices are rising or very stable in local markets with improved employment conditions, such as in North Dakota, Alaska, Washington, D.C., and many parts of Texas,” Yun noted.</p

The national median existing-home price for all housing types was $166,500 in May, down 4.6 percent from May 2010. Distressed homes – typically sold at a discount of about 20 percent – accounted for 31 percent of sales in May, down from 37 percent in April; they were 31 percent in May 2010.</p

“The price decline could be diminishing, as buyers recognize great bargain prices and the highest affordability conditions in 40 years; this will help mitigate further price drops,” Yun said.</p

All-cash transactions stood at 30 percent in May, down from 31 percent in April; they were 25 percent in May 2010; investors account for the bulk of cash purchases.</p

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

Total housing inventory at the end of May fell 1.0 percent 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.</p

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.”</p

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When calling attention to high gas prices and severe weatherrnYun is referencing the economic connection between ConsumerrnConfidence and housing demand. We have described this relationship as the “negativernfeedback loop”. This is what we wrote in August 2010 after the home buyer tax credit expired in June…. </p