Sales contracts for June (what the NAR refers to as “Pending Home Sales”) dipped slightly from the May peak. The month to month decline of an equivalent of approximately 3,000 sales was significantly weaker than June 2011’s gain of 23,600. This suggests that the demand recovery is leveling off. The Realtors are blaming it on very low levels of supply making it tough to make deals. They may have a point. I’ll address that below.
The year to year gain of 8.4% was a sharp slowing from the May year to year gain of 15.3%. The annual rate of change had been between 10% and 15% since January, continuing a string of consistent gains mostly in this range that began in March 2011. Whether this drop is significant or not is too early to tell.
The gains have been sustained for 15 months. Some fluctuation or weakening from time to time is normal. The housing market does not move in a straight line. At this point this slowing barely registers on the chart and I do not regard it as significant. Unless mortgage rates rise significantly, say more than 100 basis points, then the gains are likely to continue at varying rates. Employment growth is low, but it’s enough at the margin to keep new buyers coming into the market and driving activity. In addition, real time Federal withholding tax data for July suggests that employment growth may be accelerating.
Furthermore, inventories continue to tighten. The inventory to contracts ratio dropped to 5.1 in June, the lowest June level since before 2005. Last June, the ratio was 7.3. In June of 2010, it was 8.9. The Realtors may have a point. Sales may be weaker not because demand has softened, but because buyers can’t find what they are looking for.
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