Market Insight

The big news last week was that home sales plunged more than expected in July following the expiration of the housing tax credit at the end of April. New single-family home sales totaled 276,000 on an annualized basis, the lowest level since the Census Bureau began tracking the data in 1963, while existing single-family sales of 3,370,000 was the lowest level since May 1995. The plunge in sales drove up the supply of available single-family units on the market to 9.1 months for new homes and 11.9 months for existing homes compared with a balanced supply of five to six months. Price signals from the two surveys were mixed, but the just-released S&P/Case Shiller Home Price Index, which is based on repeat sales, paints a more optimistic picture. Sales prices increased by 4.2 percent for the three months ending in June compared with the same period last year. Prices rose in 17 of the 20 cities surveyed led by coastal California markets, including gains of 14.3 percent in San Francisco and 11.2 percent in San Diego. In a normal recovery, the housing market would lead the broader economy because the low interest rates typical in the early stages of a recovery would attract buyers. In the current recovery, high rates of delinquencies and foreclosures and weak job creation are keeping buyers sidelined. The economic recovery, if it is to continue, will have to slog ahead with the housing market in tow.

Source: Census Bureau, National Association of Realtors, Grubb & Ellis