U.S. Existing Home Sales Rise 3.1%, but Inventories of Unsold Homes at a Record High

Existing home sales rose a stronger-than-expected 3.1% in July to an annualized 5.00 million units, up from 4.85 million in June (originally reported as 4.86 million units). Expectations going into the report were for a more modest 1% gain to an annualized 4.91 million units. However, despite the pick-up in demand, it was outstripped by the rise in supply, with the inventories of unsold home rising to a record 4.67 million units. Measured in months’ supply, inventories rose to 11.2 months from 11.1 in June and matched the recent record peak achieved in April of this year.

The rise in overall sales reflected gains in both single-family units (+3.1%) and condo/co-ops (+3.4%). The gain was led by increases in the West (+9.7%) and the Northeast (+5.1%). The Midwest saw a much more modest increase (+0.9%) with activity showing a small decline in the South (-0.5%). The high level of unsold homes was likely a factor weighing on prices. In the month, the median price of homes sold fell 1.2%, which sent the year-over-year rate down to 7.1%, weakening further from the 6.1% decline recorded in June.

The level of sales in July is in line with the 4.95 million unit monthly average that has prevailed during the previous nine months, implying that sales activity has likely hit a floor. However, tightening credit conditions in financial markets will continue to limit the extent of any rebound in activity from these current depressed levels. As well, with inventories of unsold homes at record highs, the level of new construction will continue to be under downward pressure. These downside risks to growth coming from the housing market are expected to continue to keep the Fed on the sidelines, holding Fed funds at its current relatively stimulative 2% through the middle of next year.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.