Existing-home sales decline in July

The National Association of Realtors (NAR) reported that existing-home sales declined in July compared with June, but have improved compared with a year ago.

Total existing-home sales, which are based on transaction closings of single-family, townhomes, condominiums and co-ops, fell from a seasonally adjusted annual rate of 4.84 million in June to 4.67 million in July, a decrease of 3.5%. However, existing-home sales for July 2011 were 21.0% above the 3.86 million-unit pace in July 2010.

Single-family home sales were at a seasonally adjusted annual rate of 4.12 million in July, down 4% from 4.29 million in June, but 21.5% above the 3.39 million level set a year ago. The median existing single-family home price was $174,800 in July, down 4.5% in July 2010.

Existing condominium and co-op sales were at a seasonally adjusted annual rate of 550,000 in July 2011, unchanged from June and 17.3% above the 469,000-unit mark in July 2010. The median existing condo price was $168,400, down 4% from a year ago.

The NAR reported monthly declines in the West and South, which offset gains in the Midwest and Northeast for an overall monthly decline in existing-home sales.

Existing-home sales in the Northeast rose in July 2011 to an annual level of 750,000 from 469,000 in July 2010, an increase of 17.3%. The median existing condo price in the Northeast was $168,400, down 4% from July 2010. In the Midwest, existing-home sales increased 1.0% from June to July, and are at a pace of 1.05 million, a 31.3% increase from July 2010. The Midwest median price was $146,300, down 2.9% from a year ago. In the West, existing-home sales fell to an annual pace of 1.04 million in July 2011, a 12.6% decrease since June but a 16.9% improvement compared with July 2010. The median price in the West was down 7.1% from July 2010, at $208,300. The South showed a 1.6% decline in existing-home sales since June, falling to an annual level of 1.84 million, which nevertheless is 19.5% above July 2010. The median price in the South was 2.2% below a year ago, at $152,600.

The national median existing-home price for all housing types was down 4.4% from July 2010, at $174,000 in July 2011. Distressed homes -- foreclosures and short sales typically sold at deep discounts -- accounted for 29% of sales in July, compared with 30% in June and 32% in July 2010.

Total housing inventory at the end of July fell 1.7% to 3.65 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, up from a 9.2-month supply in June.

All-cash sales accounted for 29% of transactions in July, compared with 30% in June 2010, with no change compared with June 2011. The majority of cash purchases can be attributed to investors, the NAR reported.

First-time buyers purchased 32% of homes in July, compared with 31% in June, and 38% in July 2010. Investors accounted for 18% of purchase activity in July, 19% in June, and 19% in July 2010. The balance of sales was to repeat buyers, which, unchanged from June, were a 50% market share in July.

Freddie Mac reported that the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.55% in July, compared with 4.51% in June and 4.56% a year ago. Last week, Freddie Mac said the 30-year fixed rate dropped to 4.32%, according to the NAR.

In July, an unchanged 16% of NAR members reported contract failures, cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price. An additional 9% reported a delayed contract in the last three months because of low appraisals, and another 13% reported contracts that were renegotiated to lower prices because an appraisal was below the initially agreed price.

“For both mortgage credit and home appraisals, there’s been a parallel pendulum swing from very loose standards, which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction,” said Ron Phipps, president of the NAR.

“Beyond the tight credit problems, all appraisals must be done by valuators with local expertise and using reasonable comparisons. It doesn’t make sense to consistently see so many valuations coming in below negotiated prices, often below replacement construction costs,” Phipps said.

According to Phipps, in an environment following a large price correction, the price negotiated between a buyer and seller should be a fair market price. However, he said, the number of home buyers unable to complete transactions is unacceptably high. “Banks frequently request numerous sales comparisons, well beyond the customary three comps used in the past, with little consideration that some of those properties may be discounted foreclosures used to valuate a traditional home in good condition,” he said. “To a great extent, banks are exerting influence on appraised valuations with negative impacts for both home sales and prices.”

“Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” said Lawrence Yun, chief economist for the NAR. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”