Existing Home Sales Drop, Despite Incentive

Sales of existing homes dropped unexpectedly in May,

according to data released today by the National Association of Realtors. Economists had predicted that sales would rise, buoyed by the home buyer tax credit. (The deadline for contract signings was the end of April, but buyers have until June 30 to close.)

Simply put, the economists were wrong.

Completed transactions of previously owned single-family homes, town homes, condos and co-ops, were at a seasonally adjusted annual rate of 5.6 million, down 2.2 percent from April but up 19.2 percent from May 2009. This means that if sales continue at the current rate, 5.6 million existing homes will change hands in 2010. Experts polled by Reuters had called for sales to rise 5.5 percent to 6.12 million units.

NAR economist Larry Yun explains that May sales dropped because of delays in mortgage processing, particularly for short sales. In addition, Congress's failure to reauthorize the National Flood Insurance Program is delaying closings, because the government stipulates that homes with federally insured mortgages in areas prone to flood to have flood insurance.

The NAR headlined its report with the cheery year-on-year figures, but we already knew we're off the bottom. The question is how robust is the recovery?