Housing Market Update - August 2009

Housing inventories dropped for both existing and new homes in June, and housing starts increased. Though prices still lack stability, it appears we may finally have found the bottom of the housing market. The way up is unlikely to be swift or dramatic, but a tentative start has begun.

Seasonality is one of the reasons for the improvement, as sales in June are generally higher than May. However, affordability, tax credits and ample available supply are also driving the market.

Table 1: Housing Statistics at a Glance, January through June 2009

¹Source: National Association of Realtors
²Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development

r=Revised

p=Preliminary

In June, existing home sales increased by 3.6 percent over May and were off just 0.2 percent from June 2008 (see Table 1). This increase marked the third month in a row that existing home sales improved. Lawrence Yun, the National Association of Realtor’s chief economist said this about the number: “The increase in existing-home sales occurred in all major regions of the country. We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions.” The existing home inventory level dropped to 9.4 months of supply, which is down 0.7 percent from a 9.8-month supply in May.

New home sales saw dramatic improvement in June (see Table 1), increasing 11 percent over May’s level. This represents three straight months of upward movement, and the fourth increase in the last six months. Not only was the sales pace strongest since November 2008, sales numbers significantly exceeded economists’ expectations. Thompson Reuters reported they expected a pace of 360,000 new home sales, and Dow Jones Newswires reported economists expected a rise of 2.3 percent to 350,000. The median new home price, however, dropped dramatically, down to $206,200 from May’s $219,000.

While prices are far from stable, the Case-Shiller Home Price Index noted for the first time that home prices increased just under 0.5 percent in May. Prices continued to drop in only 5 of the 20 cities tracked by the index: Las Vegas, Phoenix, Miami, Seattle and Los Angeles. Prices rose in 13 of the 20 cities.

New residential construction also improved (see Table 2). Building permits increased to 563,000 in June, an 8.7 percent increase over May; single family permits rose 5.9 percent. Housing starts rose 3.6 percent to 582,000, with single family starts rising 14.4 percent to 470,000. Completions were off slightly in June, but single family housing completions rose 8.9 percent to 538,000.

Table 2: New Residential Construction, January through June 2009

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development

r=Revised

p=Preliminary