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Existing home sales crater in April, falling 3.3%

Spring buying stalls out after strong March performance

Existing home sales slowed in April, dropping 3.3% to a seasonally adjusted rate of 5.04 million for the month, according to the National Association of Realtors.

All major regions except for the Midwest experienced sales declines in April.

Total existing home sales are are completed transactions that include single–family homes, townhomes, condominiums and co–ops.

Existing home sales have been one of the few bright spots in housing this spring; sales jumped 6.1% to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February.

The sum is a disappointment, despite a few silver linings it fails to point to any building momentum.

Strength in the housing sector may be switching, from existing home sales to new home sales at least based on this report compared to the historic surge earlier this week in housing starts and permits. Still, existing home sales have increased year–over–year for seven consecutive months and are still 6.1% above a year ago.

“The shortage in inventory that’s pushing up prices continues to hold back any sustained momentum,” said Quicken Loans Vice President Bill Banfield. “However, it’s encouraging to see a more balanced market with more first-time buyers jumping-in compared to cash and distressed sales.”

Lawrence Yun, NAR chief economist, says sales in April failed to keep pace with the robust gain seen in March.

"April's setback is the result of lagging supply relative to demand and the upward pressure it's putting on prices," he said. "However, the overall data and feedback we're hearing from Realtors continues to point to elevated levels of buying interest compared to a year ago. With low interest rates and job growth, more buyers will be encouraged to enter the market unless prices accelerate even higher in relation to incomes."

Total housing inventory at the end of April increased 10.0% to 2.21 million existing homes available for sale, but is still 0.9% below a year ago (2.23 million). Unsold inventory is at a 5.3–month supply at the current sales pace, up from 4.6 months in March.

“Following the recent better-than-expected rise in housing starts and permits, optimism for near-term improvement in the housing market was accelerated. However, as we warned, the housing market does not adhere to the old adage, ‘if you build it they will come,’” said Lindsey Piegza, chief economist for Sterne Agee. “Despite a pickup in building, housing demand remains tepid. Consumers continue to struggle amid lackluster job and income opportunities – two lingering barriers that continue to limit homeownership.”

The median existing homeprice for all housing types in April was $219,400, which is 8.9% above April 2014. This marks the 38th consecutive month of year–over–year price gains and is the largest since January 2014 (10.1%).

With demand far exceeding supply, properties sold in April faster (39 days) than at any time since July 2013 (42 days) and the second shortest time (37 days in June 2013) since NAR began tracking in May 2011. Short sales were on the market the longest at a median of 180 days in April, while foreclosures sold in 50 days and non–distressed homes took 38 days. Nearly half (46%) of homes sold in April were on the market for less than a month.

"Housing inventory declined from last year and supply in many markets is very tight, which in turn is leading to bidding wars, faster price growth and properties selling at a quicker pace," says Yun. "To put it in perspective, roughly 40% of properties sold last month went at or above asking price, the highest since NAR began tracking this monthly data in December 2012."

The% share of first–time buyers remained at 30% in April for the second consecutive month. First–time buyers represented 29% of all buyers in April 2014.

According to Freddie Mac, the average commitment rate for a 30–year, conventional, fixed–rate mortgage remained below 4.00% for the fifth straight month, falling in April to 3.67% from 3.77% in March.

NAR President Chris Polychron, said that closings for some home sales could drag after Aug. 1 and into the fall as lenders transition to the new closing procedures and documentation required by the Consumer Financial Protection Bureau's Real Estate Settlement and Procedures Act and Truth in Lending Act, or RESPA–TILA, integrated disclosure rule.

"There likely will be bumps in the closing process while all parties get used to the new requirements," he said. "We hope that the move away from the HUD–1 is smooth, but even if only 10% of transactions experience closing issues, that's as many as 40,000 transactions a month."

All–cash sales were 24% of transactions in April, unchanged from March and down considerably from a year ago (32%). Individual investors, who account for many cash sales, purchased 14% of homes in April, unchanged from last month and down from 18% in April 2014. Seventy–one% of investors paid cash in April.

Distressed sales — foreclosures and short sales — were 10% of sales in April, unchanged from March and below the 15% share a year ago. Seven% of April sales were foreclosures and 3% were short sales. Foreclosures sold for an average discount of 20% below market value in April (16% in March), while short sales were also discounted 14% (16% in March).

Single–family home sales declined 3.7% to a seasonally adjusted annual rate of 4.43 million in April from 4.60 million in March, but are still 6.5% above the 4.16 million pace a year ago. The median existing single–family home price was $221,200 in April, up 10.0% from April 2014.

Existing condominium and co–op sales were at a seasonally adjusted annual rate of 610,000 units in April (unchanged from March) and are 3.4% higher than April 2014 (590,000 units). The median existing condo price was $206,100 in April, which is 0.4% higher than a year ago.

April existing home sales in the Northeast declined 3.1% to an annual rate of 620,000, but are 1.6% above a year ago. The median price in the Northeast was $253,200, which is 3.6% higher than April 2014.

In the Midwest, existing home sales increased 1.7% to an annual rate of 1.22 million in April, and are 13.0% above April 2014. The median price in the Midwest was $173,700, up 11.4% from a year ago.

Existing home sales in the South declined 6.8% to an annual rate of 2.04 million in April, but are still 3.6% above April 2014. The median price in the South was $189,400, up 8.5% from a year ago.

Existing home sales in the West decreased 1.7% to an annual rate of 1.16 million in April, but are still 6.4% above a year ago. The median price in the West was $318,700, which is 10.0% above April 2014.

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