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SMF Notes: Existing Home Sales Reveal Deep Payback Period
The call of a short and sweet payback period following the expiration of the homebuyer tax credit went out the window with July's existing home sales data. Total home sales fell 27.2% from 5.260 mln in June to 3.830 mln in July. Both the rate of decline and the actual sales level were the worst since records began in 1999. The Briefing.com consensus forecast expected sales to fall to "only" 4.72 mln. Surprisingly, the median existing home price was up 0.7%, but this doesn't necessarily suggest that prices are still on the rise. Since the price is not a repeat sales index, the rise in the median price suggests that first time homebuyers did not have as much of an impact on existing home sales as they did in prior months. Rather, existing home owners were the main purchaser and they stepped up to more expensive properties that were made more affordable by the drop in mortgage rates. Unfortunately, the purchases of more expensive properties may actually hurt the new home sector. Since the end of 2009, homebuilders changed their building strategies to compete for first time homebuyers by building smaller homes. According to the existing home sales data, these homes are currently not the most desirable. That may result in a further downturn in new home sales as the new home inventories do not match what is being currently demanded over the coming months. As a result, tomorrow's new home sales numbers may come in much lower than expected, with a drop below 300,000 homes being very plausible (Briefing Consensus 334,000).
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