Best Financial Markets Analysis Article Sales of all existing homes rose 7.7% to an annual rate of 5.03 million units. Single-family unit sales were stronger (+8.5%). Regionally, sales of existing homes increased in all four regions, with the nearly 19% jump in the West as the largest gain. From a year ago, sales of existing single-family homes have posted double-digit gains in July and August because of a base effect. Sales of existing homes in July-August 2010 fell sharply after the first-time home buyer credit program expired. Therefore, the year-to-year comparisons partly exaggerate the trend of existing homes sales.

The National Association of Realtors has pointed out that a larger number of cancellations, due to underwriting problems stemming from appraisals values coming in less than negotiated price, occurred in August (18% of realtors reported vs. 16% in July) compared with July. Also, foreclosures and short sales made up 31% of sales in August, up from 29% in July but down from 34% in August 2010.

The median price of a single-family existing home fell 1.1% to $168,400 from a month ago. On a year ago basis, the median price of an existing single-family home dropped 5.5%. As long as distressed properties makeup 30% of existing home sales and the inventory of unsold homes is above the historical median and the labor market continues to show only tepid gains in hiring, prices of homes should continue to show a declining trend. The seasonally adjusted inventory of unsold existing single-family homes fell to 7.7-month supply in August from 8.7-month supply in the previous month. The median for the inventory-sales ratio is 7.3 month supply. The inventory-sales ratio is moving in the right direction (see Chart 5), but it is not clear if the August improvement is a fleeting event or further declines are likely. Weak labor market conditions suggest that it most likely a one-off event.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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