June existing home sales fall; SFH sales at lowest since 1998

It's existing home sales day, with the latest numbers recently released by the National Association of Realtors. Here's what the June data showed ...

* Sales fell 2.6% to a seasonally adjusted annual rate of 4.86 million in June from 4.99 million in May. That was slightly worse than the average forecast of 4.94 million home sales. Sales were down 15.5% from the year-earlier reading of 5.75 million. This is the lowest rate on record for all existing home sales. Single-family only sales, at 4.27 million, were the lowest since January 1998 (shown in the chart above).

* The supply of homes for sale climbed inched up to 4.49 million units in June from 4.482 million in May (previously reported as 4.485 million). They were up from 4.368 million a year earlier. On a months supply at current sales pace basis, inventory climbed to 11.1 months from 10.8 months in May. That was also up from 9.1 a year earlier, but ever so slightly below the cycle peak of 11.2 months in April.

The single-family only supply reading was 11 months, up from 10.5 in May. That's the highest going all the way back to June 1985 (11.4 months).

* Median home prices rose 3.5% to $215,100 in June from $207,900 in May (previously reported as $208,600). They fell 6.1% from $229,000 a year earlier.

June was another weak month for the existing home market, with sales of single-family homes falling to the lowest level in more than a decade and the supply of homes on the market hovering near mutli-year highs. The list of reasons for the weakness is long: Consumer confidence is down. Unemployment is up. Mortgages are harder to get now that lenders have found religion. And the broader economy has been decelerating. We're also seeing long-term mortgage rates climb precipitously. At 6.63%, 30-year fixed loan rates are within a whisker of their multi-year high (6.8%, set in July 2006).

That's the bad news. On the flip side, Congress is passing a significant package of reforms and bailout programs designed to support the housing market. President Bush will sign this into law within days. Some of its provisions, such as the FHA refinance program, are designed to keep more stressed borrowers in their homes, reducing the supply of foreclosures coming to market. Others, like the tax credit for new home buyers, are targeted at the demand side of the equation. And of course, raising the loan limits permanently will allow Fannie Mae, Freddie Mac, and the FHA to back more loans in higher cost areas. This should bring some relief to formerly jumbo buyers who have been paying much higher rates to get loans.

But like other reform packages before it, this one can only soothe the pain for some buyers and borrowers, not cure the disease. Only lower prices, less construction activity, and the passage of time can fix the underlying imbalance between housing supply and housing demand.