Existing home sales drop by 4.1%

What are economists saying about the decline?

Sales of existing homes in the U.S. decreased in July for the fourth month in a row, the National Association of Realtors said. Sales dropped by 4.1% from June to a seasonally adjusted annual rate of 6.33 million, the lowest level since January 2004. The inventory of unsold homes in July rose to a record of 3.86 million. At the current sales pace, it would take 7.3 months to exhaust that overhang. Here’s what economists and others had to say about the data, and what they mean for the broader economy and interest rates.

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The softening in the home-resale market was greater than expected in July and survey data for August mortgage applications and homebuilder sentiment suggest that conditions will weaken further in August. We also expect that new home sales declined in July. These housing data should help keep the Fed on hold in September as it attempts to evaluate how much economic growth has moderated by. – Bear Stearns U.S. Economics

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The supply-demand balance in the market for existing homes continues to deteriorate. Months’ supply for single-family existing homes rose to 7.2 in July, the highest since May 1993. This sharp deterioration has already affected a rapid adjustment in price appreciation, and will likely continue to apply downward pressure on prices in the near-term. … To be sure, price appreciation on a year-over-year basis has not turned negative yet, as they had briefly in the early- and mid-1990s. But that is where prices are likely headed given the deterioration in months’ supply. — Haseeb Ahmed, J.P. Morgan Economics

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No region was spared from July’s softness, with the Northeast (-5.4%), Midwest (-5.9%), South (-1.2%), and West (-6.4%) all seeing a drop in housing demand. The headline figure was well below our forecast and that of the consensus, and corroborates recent builders’ statements that the housing market cooled substantially at the start of the summer. — Omair Sharif, RBS Greenwich Capital

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Buyers are reportedly showing some renewed interest in the market now that prices have cooled off and mortgage rates have come off their peaks. A downward correction in sales volumes in the housing market is still expected for several more quarters, but it may not be quite as steep as what we have seen over the past year. — Brian Bethune, Global Insight

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Not only another downward surprise from the housing market but another one of increasing magnitude as the housing market slump accelerates. … And as supply and demand moves even further out of kilter as these data show continuing, mounting downward pressure on prices is inevitable. And as we have been warning for months, in turn, this implies that households’ willingness to extract equity out of their homes to bolster spending growth will almost certainly fade. — Richard Iley, BNP Paribas Market Economics