Existing-Home Sales Jump in July to Start a Long, Slow Recovery

Existing home sales jumped an unexpectedly strong 7.2 percent in July to the highest total in nearly two years in today’s report from the National Association of Realtors. This good news was tempered by a parallel rise in the number of existing homes listed for sale so the months’ supply of inventory remained at 9.4, about double the supply in a normal market. This is final confirmation that the housing market is now recovering. After an initial spurt, it will be a long, slow recovery that stops short of overheated housing activity several years ago.
The month-to-month sales gains were 13.4 percent in the Northeast and 10.9 percent in the Midwest. These two regions experienced the same recession-driven housing slump as the rest of the country but relatively less housing problems from subprime mortgages. Their huge July gains have to be attributed to the end of the recession, which is edging up confidence and maintaining home affordability at near record high levels.
By contrast, July sales increased 7.1 percent in the South and fell 1.7 percent in the West.
These regions -- especially the West -- had relatively larger housing problems stemming from subprime mortgages. They have relatively more households trapped in homes worth less than the mortgage principal and hence unable to move to another home.
Note that the same regional disparities appeared in the most recent housing starts reports. The regional disparities are likely to widen in the next few months. The recession in the West and in parts of the South was deepened by relatively large number of subprime mortgages in these regions.
Much of the credit for the recent housing improvement has to be given to the federal programs to subsidize down-payments for new homes for first-time buyers and reduce monthly mortgage payments for current homeowners, thus keeping homes off the resale markets and firming home prices. Nonetheless, the federal programs will be unable to stop the unusually high level of foreclosures and distress sales expected over the next year.
In addition, there is a long list of other restraints on the housing recovery. It includes depressed buyer confidence, tougher mortgage approval standards and continuing job losses. Home builders and their suppliers will be operating in a depressed market for several more years.

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