We just got May existing home sales data from the National Association of Realtors. Here’s what the numbers looked like …

* Sales climbed 2% to a seasonally adjusted annual rate of 4.99 million in May from 4.89 million in April. That was slightly better than the average forecast of 4.95 million home sales. Sales were down 15.9% from the year-earlier reading of 5.93 million.

* By region, sales rose 4.6% in the Northeast, 5.5% in the Midwest, and 2% in the West. They fell 0.5% in the South. By property type, sales climbed 1.6% in the single-family market and 5.5% in the condo arena.
 
* The supply of homes for sale dipped 1.4% to 4.49 million units in May from 4.55 million in April, but climbed from 4.378 million a year earlier. On a months supply at current sales pace basis, inventory dipped to 10.8 months from 11.2 months in April, but rose from 8.9 a year earlier.

* Median home prices rose 3.7% to $208,600 in May from $201,200 in April (previously reported as $202,300). But they fell 6.3% from $222,700 a year earlier.

The May existing home sales figures were a bit better than expected. Sales improved modestly, the supply of homes for sale shrank a bit, and median prices increased on a monthly basis.

The problem: I think the improvement will prove short-lived. The existing home sales figures track closings, not contract signings. So they’re a bit of a lagging indicator. In fact, they just confirmed what we already knew from April’s pending sales data and April’s new home sales figures (which track signings) — namely that the market ticked higher that month.

Since then, it appears the housing market has downshifted again. New home sales dipped in May … the NAHB index tagged its cycle low in June … and the Mortgage Bankers Association’s purchase applications index just sank to its lowest level since February 2003. None of that is encouraging. Neither is the commentary from key home builders. Lennar, for one, said just this morning that “the housing market has continued its downward trend throughout out second quarter.”

Finally, there’s the deteriorating broad economy. Gas has climbed above $4 a gallon. The unemployment rate is rising. Lenders are tightening mortgage standards. Consumers are the gloomiest about the economy’s future that they’ve been in the past four decades. And house prices continue to decline in broad swaths of the country.

All of these factors suggest housing will remain weak for the balance of 2008 — and that a longer-lasting recovery remains over the horizon.

Last 5 posts by Mike Larson

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