As a follow up to our data feature last week about how Banks Sell More Homes than Builders, this week we take a quick look at just how much REO sales undercut the market courtesy of Housing Intelligence Pro.  REO Sales encompass transactions from any financial institution, and closely correlate with what would be considered distressed property sales.  Since the beginning of 2009, these sales have only commanded a closing price at $91 per square foot, while new homes and regular resales have a combined average price per square foot of $140.  That means the delta is nearly $50 per square foot, making it clear why distressed property sales can be so damaging for price stability in local market areas, and making it extremely difficult for home builders to keep their products priced competitively.

In broader housing news this week, residential construction activity and existing home sales in June declined for the second straight month following the expiration of the federal homebuyer tax credit.  After the surge in housing activity leading up to the conclusion of the tax credit at the end of April, it was almost inevitable that activity would slip in the coming months so the slowdown reflected in the data released this week should come as no surprise.  Falling mortgage rates, which reached a new all-time low this past week, have helped support sales activity to some extent.  However, with the job market still slim pickings and a lot of housing demand forwarded into the early part of the year, the forecast may call for a rough fall and winter for home sales.

The Economy
After falling to its lowest levels since August 2008 last week, initial jobless claims posted a larger than expected increase this past week.  First-time unemployment claims increased by 37,000 from the previous week to a seasonally-adjusted figure of 464,000 in the week ended July 17.

The leading index declined to a reading of 109.8 in June which is a 0.20 point drop from May levels.  The index is still up 2.80 points from its levels six months ago when it stood at 107.0 in December.  The slight decline in the leading index suggests that economic growth may slow in the coming months.  Declines in average workweek hours, stock prices, vendor performance along with an increase in initial jobless claims dragged on the leading index last month.

The most recent reading for the consumer price index shows that inflation remains tame although falling price levels have now sparked some concern about the possibility of deflation.  The consumer price index in June declined slightly due to drops in energy, transportation, and housing costs.  The consumer price index declined 0.1% from the previous month on both a seasonally-adjusted and non-seasonally adjusted basis.  Core CPI, which excludes often volatile food and energy prices, remained virtually flat for the third consecutive month in June on a non-seasonally adjusted basis while increasing 0.2% from last month on a seasonally-adjusted basis.  Headline inflation increased just 1.1% from the same period last year while core consumer inflation increased 0.9% from June of last year.  This is the tamest annual increase in core consumer prices that we have on record beginning in 1980.

Housing Market
Existing home sales declined 5.1% from May levels to 5,370,000 units.  Existing single-family home sales declined 5.6% from last month to 4,700,000 units while existing condo and co-op sales fell 1.5% from May levels to 670,000 units.  Existing home sales are still up 9.8% from the same year-ago period and have now recorded year-over-year increases in 12 consecutive months.  Although home sales have declined as expected following the expiration of the homebuyer tax credit at the end of April, they have come in higher than most economists have expected which is a positive sign.  Record-low mortgage rates have helped keep demand elevated in the resale market.

Median existing home prices in June increased again to their highest level since October 2008.  The median sales price for an existing home increased to $183,700 from $174,600 in May.  Median existing home prices are up 1.05% from June of last year.  This is the fourth straight month that existing home prices have recorded a year-over-year increase.  Firmer prices despite slower sales activity and the expiration of the homebuyer tax credit are a positive sign for the housing market going forward.

Existing home inventory increased 2.5% from the previous month to 3,992,000 units.  Existing home inventory levels have posted increases in four out of the past five months and remain at historically high levels.  Existing home inventory levels are 4.7% higher than they were this time last year.  An increase in units for sale along with slower sales activity pushed months of inventory to 8.9 months which is the highest it has been since August 2009.

U.S. housing starts fell for the second straight month following the expiration of the federal homebuyer tax credit at the end of April.  Total housing starts fell another 5.0% in June following a 14.9% drop in May to a seasonally-adjusted annual rate of 549,000 units.  This is the slowest annual pace for total housing starts since October 2009.  Single-family housing starts eased 0.7% to a seasonally-adjusted annual pace of 454,000 units in June while multi-family starts fell 21.5% to a seasonally-adjusted annual pace of 95,000 units last month.

Total building permit activity increased 2.1% in June due to a rise in multi-family issuances while single-family activity remained weak for the second straight month.  Single-family permit activity fell 3.4% from the previous month to a seasonally-adjusted annual pace of 421,000 units while multi-family permit activity jumped 19.6% to a seasonally-adjusted annual pace of 165,000 units.

National average mortgage rates declined from the previous week to a new all-time low of 4.56% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 22nd.  Mortgage rates have not posted a weekly increase in the past five weeks.

In the week ending July 16th, the MBA’s seasonally-adjusted purchase index increased 3.43% from the previous week but was still down 35.56% compared to the same time last year.  This is the first time in the past five weeks that the purchase index has posted a weekly gain.  Despite this past week’s gains, the index remains near its lowest levels in almost 14 years.  The index has also posted declines in nine out of the past eleven weeks following the expiration of the federal homebuyer tax credit.

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