Economic Insights

Home sales slip, stock of unsold homes rises

Home resales fell 1 percent in April to a 4.89 million-unit annual rate, the National Association of Realtors said.

The sales pace was a bit better than expected on Wall Street, but the stock of unsold homes surged 10.5 percent to 4.55 million units, leading economists to warn of further market woes ahead.

At the current sales pace, the supply of homes reached 11.2 months' worth, the highest since the trade group began tracking single-family and condo properties together in 1999. For single units, the supply was 10.7 months' worth, the most in 23 years.

The increase in unsold inventory suggests that the housing downturn will continue on through this year and well into next

Stocks initially got a slight lift from the data, but later turned lower as the market digested the news and warily eyed a resumption in the steep run-up in oil prices. In early afternoon, the Dow Jones industrial average was off 150 points.

Prices of U.S. government bonds rose as investors shifted out of stocks, while the dollar fell and oil climbed above $131 a barrel.

The report showed the median home price in April was down 8 percent from a year ago, at $202,300. It was the second-largest price decline on record, following the biggest drop in February.

"The big surprise was the inventory of unsold homes rising to a record level,' "This would suggest to us that further price declines are going to be necessary for the inventory to clear."

A report on Thursday showed home price declines accelerated in the first quarter. The federal Office of Housing Enterprise Oversight said its price index fell 1.7 percent in the first quarter, the steepest drop in the index's 17-year history.

Other price measures have shown even steeper drops. The Standard & Poor's/Case Shiller home price index of 20 metropolitan areas showed a drop of 12.7 percent in the 12 months through February, with prices down 15.8 percent from their June 2006 peak. The March index will be released on Tuesday.

"With prices collapsing, the incentive not to buy a home is increasing by the week, and with inventory showing no sign of improvement prices will keep falling. One-fourth of the sales likely were due to foreclosure, which he said was another negative sign.

Foreclosed homes, which sell at substantially lower prices, are increasingly showing up in the existing home sales data.

Several markets are seeing a significant rise in home sales.  These markets are also the markets that have witnessed a substantial decline in prices.

The trade association said last month's existing home sales pace was 17.5 percent below the rate of April 2007, with single-family home sales off 16.1 percent and sales of multiple family units down 27.9 percent

Today,  real estate is a great investment, but you have to be smart about what you are offering.  I recommend that clients bid 12-15+% below the asking price. This will allow you to build in the market decline as real estate inventories increase putting downward pressure on house prices.

If you have any questions, please just call.

Happy Memorial Day!

Heath Lefort -Personal Financial Advisor & Economist

401-461-9987