May existing home sales plunged far below expectations, coming in at an annualized -2.2% rate, compared to consensus of 6.0%, and a revised 8% in April. This is the second worst monthly drop in history, and shows just how very wrong economists are, and how they will all have to revise their outlooks lower, for all macro indicators including GDP. The plunge occurred even despite near record low 30 year mortgage rates: the Freddie 30-year, conventional, fixed-rate mortgage fell to 4.89 percent in May from 5.10 percent in April; the rate was 4.86 percent in May 2009. The push forward effect of the administration's various subsidies is now over and a double dip is likely now inevitable unless yet another stimulus plan is implemented. There is nothing quite like the administration finding a scapegoat du jour: first it was snow in winter, then hot weather in the spring, now it is the oil spill: "Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance."
From NAR press release:
Existing-home sales remained at elevated levels in May on buyer response to the tax credit, characterized by stabilizing home prices and historically low mortgage interest rates, according to the National Association of Realtors®. Gains in the West and South were offset by a decline in the Northeast; the Midwest was steady.
Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April. May closings are 19.2 percent above the 4.75 million-unit level in May 2009; April sales were revised to show an 8.0 percent monthly gain.
Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. “We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” he said. “However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.
“In addition, many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance.”As the leading advocate for homeownership issues, NAR is supporting Senate amendments to extend the home buyer tax credit closing deadline through September 30 for contracts written by April 30, and to renew the flood insurance program. “Sales and related local economic activity would have been higher without delays in the closing process or flood insurance issues,” Yun noted.