Existing-Home Sales Plunge 27.2% to Lowest Level Since 1999

There's no way to sugarcoat it: Existing home sales plunged 27.2% in July to a 3.83-million-unit annual rate -- far worse than expected -- the National Association of Realtors announced Tuesday.

Home resales are now at the lowest level since the NAR started tracking them in 1999.

A Bloomberg survey had expected July existing home sales to fall to 4.65 million from June's 5.26 million annual rate, which itself was revised down from the previously released 5.37 million. Home resales reached a 5.66 million annual rate in May.

Sales are down 25.5% from the 5.14 million annual rate registered a year ago in July 2009, and the recent trend is clear: Existing sales declined as the end of the home-buyer credit approached and then ended on April 30.

Feared the Worst, and Got It

Economists had feared the worst regarding the existing home sales trend as a result of sluggish job growth and the end of the home-buyer credit program, and they pretty much got it.

In July, sales fell in all four regions of the country, plunging 29.5% in the Northeast, 35% in the Midwest, 22.6% in the South, and 25% in the West.

Another statistic that would support a second renewal of the tax credit concerns home inventories, which increased 2.5% in July to 3.98 million units or a staggering 12.5-month supply at the current sales pace. That's up from an 8.9-month supply in June. A healthy resale market has a three- to five-month supply of homes.

NAR Chief Economist Lawrence Yun tried to put the best possible face on July's grim data. "Consumers rationally jumped into the market before the deadline for the home-buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September," he said in a statement. "However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs."

Further, Yun added that the NAR still expects existing home sales to total 5 million units in 2010. Given the current home sales trend and uncertain U.S. GDP growth rate outlook, that may represent a major achievement, to say the least.

Meanwhile, the median sales price for all types of housing was $182,600 in July, up 0.7% from a year ago.

The median sales price for a single-family home was $183,200 in July, up 0.9% from a year ago. Median single-family home prices by region were as follows: Northeast, $263,800, up 4.8% from a year ago; Midwest, $151,600, down 2.8%; South, $156,300, down 3.3%; and the West, $224,800, up 3.3%.

A Retrenching Housing Market

The sharp decline in existing home sales this summer -- historically a period of rising home sales -- shows a housing market that is retrenching, in part due to inadequate job growth, and the end of the home-buyer tax credit.

Economists have split over the appropriateness of the home-buyer tax credit, almost since the program was first proposed about a year ago. Economic conservatives generally argue that the tax credit does not stimulate the economy on a net basis because it simply takes sales that would have occurred later and brings them forward.

Conversely, economic liberals generally argue that the tax credit lured some Americans into the home buyer market who probably would not have bought a home without the credit, resulting in an increase in commercial activity.

In the final analysis, both arguments may prove to be moot. Given the current mood of fiscal austerity on Capitol Hill, there does not appear to be enough political support to renew the credit later this year. Further, Congress is in recess with almost all lawmakers back in their districts campaigning for re-election.