June Home Sales Drop Exposes Weakness In Fundamentals



In the housing sector, a drop in home sales in the month of June is as unexpected as congress voting themselves a pay cut. This is simply something that never happens. Traditionally June is one of the best months of the year for home sales, but the fact that June sales numbers are down after several months of increases, tends to reinforce the fact that the underlying economic fundamentals continue to weaken.

Housing is still sick © ayelet_keshet – Fotolia.com

Even at the height of the great-recession, June and July home sales represented the peak of the summer selling season. The fact that June sales numbers were the lowest since last winter should be a reason to view housing market fundamentals with caution until we know if this trend will continue for July and August. With builders pulling more permits and foreclosures continuing to mount in hard-hit areas, this is no time to assume that housing is headed for a significant rebound.

When it comes to housing, one of the key fundamentals is employment growth – or the lack of it. The U.S. continues to be mired in an uneven job market. While some locations continue to enjoy a stable or improving job growth picture, there are still many parts of the nation that are experiencing job losses or at best, no job growth.

The fact that unemployment claims have increased recently, combined with the lower sales numbers for June could be a strong sign that things could get worse for housing.

The recent supreme court ruling upholding the “Patient Affordable Care Act” (a.k.a. Obamacare), seems to be having a negative impact on the economy as well. Many employers are holding off on new hiring due to fears over the costs associated with implementing this new program, which carries significant financial requirements for many employers. And the tax increases embedded in this law are expected to have a negative impact on the economy going into 2013.

Mortgage credit also remains tight, with qualifying criteria as stringent ever. Though we’ve still got low-down-payment FHA loans, those loans are still difficult to get, and FHA has been experiencing significant increases in 30 and 60 day delinquencies. If this trend continues, FHA insured loans will become even more difficult to obtain.

But if you’d like some good news, Lawrence Yun, The Chief Economist for the National Association of Realtors has found a way to “wring” some good news out of the June housing report. They are well known for their ability to find good news in any housing data. But the NAR is not known for an ability to recognize fundamental problems in housing, such as in May of 2008, when Mr. Yun and the NAR predicted a housing recovery by the end of that year. (Realtor Magazine, May 2008)

There is little doubt that the underlying economic fundamentals needed to support a housing market recovery are weak at best. Those who have a professional interest in the housing industry should keep a positive outlook, tempered by the reality of the potential for financial calamity just ahead, and plan accordingly.