Existing home sales data for May is in, and the stock market didn't like it. According to the National Association of Realtors, sales dropped 2.2% to a 5.66 million annual rate in spite of the expiring federal tax credit incentive. This was a surprise to economists, who expected a 5% increase.
Low sales in the Northeast, a whopping 18% drop, skewed the numbers. Sales were actually up 0.5% in the South, 4.9% in the West, and remained unchanged in the Midwest.
There is marked improvement in sales since last year at this time, in spite of high unemployment figures. Year over year, existing-home sales rose 19.2% - a result of improved affordability due to a combination of slashed home prices, the federal tax credit and historically low interest rates. The average 30-year mortgage rate was 4.89% in May, down from 5.10% in April, according to Freddie Mac.
The median price for an existing home was $179,600 in May, up 2.7% from May 2009.
Inventories of used homes decreased by 3.4% at the end of May to 3.89 million available for sale. That represented a 8.3-month supply at the current sales pace, compared to a 8.4-month supply in April.
However, these numbers do not reflect the mounting "shadow inventory" outlined in a recent report from Standard & Poor's/Case-Shiller Home Price Indices. Shadow inventory is defined as homes that are 90-plus days delinquent, in foreclosure, or bank-owned (REO) but not yet on the market. It also assumes that 70 percent of recently "cured" loans will ultimately redefault (a U.S Treasury estimate.)
The S&P report concluded that it will take an average of 34 months to sell off the shadow inventory at the current pace of liquidation. The greater New York area showed the highest amount of shadow inventory with 103 months, then Miami (61 months) and Boston (58 months).
It appears that the cities that have been making foreclosure headlines may have already hit their peak in 2008/2009. Phoenix shows the lowest supply of shadow inventory at 18 months, followed by Las Vegas (21.4 months) and Detroit (23.3 months). Other metro markets where shadow inventory was below the national average were Minneapolis (23.5 months), San Diego (28.8 months), San Francisco (29.2 months), Denver (29.7 months) and Portland (32.5 months).
What does this mean to you as an investor? How will you use this data? Share your thoughts in the comments box below.
Tags: Existing Home Sales, REOs, S&P/Case-Shiller
