This is an update to correct a quote to say that inventories are 2 million above normal.
WASHINGTON (MarketWatch) – The inventory of previously owned homes up for sale in May rose to the highest level in relation to sales in 15 years, a real-estate trade group said Monday, putting even more houses into an already glutted market.
Sales of existing homes fell 0.3% last month to a seasonally adjusted annual rate of 5.99 million, down from the upwardly revised 6.01 million in April, the National Association of Realtors reported.
Sales were down 10.3% compared with a year earlier and were off about 17% from the peak.
‘We still seem to be in the sellers’ denial phase of the market and we haven’t even hit the buyers’ denial portion, when people don’t realize that prices are no longer dropping.’
— Joel Naroff, Naroff Economic Advisers
Still, May’s sales were stronger than the 5.90 million pace that economists surveyed by MarketWatch had been expecting. See Economic Calendar.
Inventories of homes on the market rose by 5% to a record 4.43 million, representing an 8.9-month supply at the May sales pace. That’s the biggest overhang of inventory since June 1992, at the tail end of the last housing bust.
The inventory figure compared with 8.4 months in April and 7.4 months in March.
Home builders have their own inventories of unsold homes to contend with. An exchange-traded fund tracking the homebuilders fell about 1.8% on Monday. See full story on the builders.
High levels of inventories should keep prices flat or falling in coming months.
“The current level is approximately 2 million units above normal, a figure that glaringly illustrates the housing market’s biggest problem,” wrote Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.
“The only way we’re going to chip away at this Mount Everest-sized pile of inventory is by price cuts, and so far, sellers haven’t been aggressive enough,” wrote financial analyst Mike Larson on his blog. Read more.
Many prospective buyers are reluctant to borrow money to buy an asset that’s depreciating in value.
“We still seem to be in the sellers’ denial phase of the market and we haven’t even hit the buyers’ denial portion, when people don’t realize that prices are no longer dropping,” wrote Joel Naroff, chief economist for Naroff Economic Advisers. “This market has a very long way to go before we will be able to characterize it as solid.” Listen to an interview with Naroff.
The median price of a home sold was $223,700, down 2.1% compared with May 2006. It’s the 10th straight month of declining year-over-year median prices.
“Psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” said Lawrence Yun, senior economist for the realtors group.
By sector, May’s sales of single-family homes dipped 0.8% to an annualized 5.20 million, while condominium sales rose 2.6% to a seasonally adjusted annual rate of 790,000.
By region, sales fell by 3.4% in the South and by 0.8% in the West but rose by 5.8% in the Northeast and by 0.7% in the Midwest.
Yun said buyers are simply waiting to buy. He’s found that household formation has slowed dramatically since late 2006, something rarely seen outside of a recession.
“The market is underperforming when you consider positive fundamentals such as the strength of job creation, economic growth, favorable mortgage interest rates and flat home prices,” Yun said.
Mortgage rates have surged higher since May, hitting 6.69% in the most recent week, compared with an average of 6.26% in May.
Rex Nutting is Washington bureau chief of MarketWatch.
.
