Sales of existing homes in fell in July to the lowest level in 15 years, significantly worse than expected. Stocks fell after the news as it added the growing concerns of investors about the pace of the nation’s economic recovery.
According to data collected by the National Association of Realtors, existing homes sold at an annual rate of 3.83 million units, 27.2% lower than the June level. Compared to a year ago, sales were off 25.2%.
Analysts had expected home sales to drop 12% to an annual pace of 4.7 million homes.
“When a report like this comes out, it takes your breath away,” wrote Joel Naroff with Naroff Economic Advisors.
Many economists believe the enormous drop in sales is a direct result of the federal government’s tax credit that expired in June. Buyers who might have purchased a home later in the summer rushed to buy in the spring in order to receive the tax credit. That left fewer buyers in the remaining summer months and resulted in fewer sales.
Data from the realtors group could support that explanation, as first time buyers, the group that qualified for the largest tax credit, accounted for 38% of home purchases in July compared to 43% in June.
Other analysts, however, blame the overall economy and stubbornly high unemployment.
“It is hard to justify the magnitude of the decline on tax credits alone,” said Diane Swonk, chief economist with Mesirow Financial. With low mortgage rates and more affordable homes, “The recent loss in jobs and concerns about the sustainability of the recovery are more likely the culprits.”
And with the economic recovery stalling, the outlook for home sales is gloomy. The realtor trade association said the slow sales pace will continue in the months ahead.
But the chief economist for the realtors remained optimistic. “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,” said Lawrence Yun, chief economist, in a press release.
That sales growth will need to rise swiftly as there is now a 12.5 month supply of homes available for sale at the current sales pace. Most economists believe a six-month supply of homes or less is best.
One slightly positive note in an otherwise terrible report: National median home prices increased by a slight 0.7% from a year ago to $182,600.
Distressed home sales, where homeowners face foreclosure or are significantly late making their payments, accounted for nearly a third of all purchases. Investors bought 19% of homes. And despite record low mortgage interest rates, all cash sales rose to 30% of all sales from 24% in June.
In the Northeast, sales fell 29.5% from June to July and are down 30.3% from a year ago. Median home prices rose 4.8% in the region to $263,800.
In New York City, sales fell 24.9% compared to a year ago and median prices rose 4.9% to $414,300.