Merk Investments: Existing Home Sales

Purchases of existing homes increased 2.0% to 4.99 million for the month of May, just shy of our forecast for a gain to 5.04 million. Sales of single-family residences increased 1.6% and the condos/coops advanced 5.5%. The median price of a home fell -6.3% year over year, which facilitated a decline in existing inventories to 10.8 months of stock. On a regional basis purchasing activity increased 5.5% in the Midwest, 2.0% in the Northeast and 4.6% in the West. The South saw a decline of 0.5% for the month.

In what should be the best month of the traditional summer buying season the market observed a modest increase of 2.0%. The fall in prices did facilitate a decline in inventories, which provided a rare bit of sunshine in the market. However, at this juncture the conditions for a bottom to form in the housing sector are not ripe. Long-term rates have reassumed an upward trend and it is still quite difficult to obtain a non-conforming jumbo loan. While there are some good bargains for cash buyers and those that have information on prime foreclosures, the market is extremely fragile and has many more months of difficulty in front of it. We expect that the unintended consequences of the Fed’s adoption of a hawkish tone should take some of the steam out of the one month gain and we anticipate that the May increase in purchasing activity will prove transitory.