The pace of home sales in the United States took a sharp turn for the worse in July, falling a record 27 percent from June and raising new concerns about the economy's health.
Sales of previously owned homes fell to an annualized pace of 3.8 million, down from 5.3 million in June and 5.1 million a year earlier. Sales volume fell in all regions of the country, while the median selling price was $182,600, similar to where it stood both in June and a year earlier.
What's surprising is less the decline itself – forecasters had expected sales to cool after the expiration of a special tax credit for home buyers – as the magnitude. Housing-market forecasters had expected about 4.7 million sales for July.
The July surprise is bad news for the economy in two ways. First, the housing market tends to mirror conditions in the overall economy, and this report amplifies concern that momentum is slowing in the second half of 2010. The stock market sagged further on the housing news Tuesday morning.
Second, in a look further ahead, the news suggests that working through a glut of unsold homes and foreclosed properties may take longer, and weigh more on consumer confidence, than some economists predicted.
The plunge in sales activity raises a stark question: What will it take to bring buyers back to the market?
Mortgage interest rates are at record lows, after all. There are plenty of homes available, at prices that in many markets are historically attractive. Yet July's sales volume for single-family homes was the lowest since 1995, when the US housing market was struggling to recover from another (milder) slump.
It appears that the main answer to the conundrum is jobs.
People who have jobs and who have a need or desire to relocate can buy homes, but about 15 million Americans are currently unemployed. A revival of the job market could also help boost the confidence of other potential buyers who have enough income to buy a house. Right now, they may be worried about their own job security. And some figure that there’s little urgency to buy, because home prices may fall further until jobs become more available in the economy.
The National Association of Realtors, which released the housing numbers, sought to cast the news in a glass-half-full light.
"A pause period for home sales is likely to last through September,” Lawrence Yun, NAR's chief economist, said in a statement accompanying the report. “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."
That's the problem: After some promising months earlier this year, the economy hasn't been adding jobs lately.
"A sustained upturn [in the housing market] will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace," Nigel Gault, an economist at IHS Global Insight, said in a note analyzing the sales numbers.
Slower-paced sales mean it will take longer for the housing market to work through excess inventory. The estimate of the "months supply" of homes on the market jumped to 12.5 months in July, up from 8.9 months in June.
Most forecasters don't see the economy dipping back into recession later this year, but their concern about this possibility has been rising. At the very least, it now looks likely to many that the economy will be growing too slowly to generate substantial job gains in coming months.