Author: RBC Financial Group Economics Department

U.S. existing home sales unexpectedly declined in June as inventories continued to decline and prices up sharply.

• Existing home sales in the US declined 5.4% to 4.37 million annualized units in June 2012 from May’s upwardly revised pace of 4.62 million. Market expectations for June were for a stronger 4.62 million reading in the month.
• The median price of existing homes jumped by 7.9% on a year-over-year basis and reached its highest level since September 2008.
• Homes available for sales declined by 3.2%; however, this was exceeded by the slower pace of sales leading the months’ supply of unsold homes to rise to 6.6 from 6.4 in the previous month.
• While today’s reported decline in the pace of existing home sales in June is disappointing, the decline in housing inventories and shrinking market share of distressed properties are supporting home price growth and lend further credence to the anecdotal assessment released yesterday in the Fed’s Beige Book that the housing sector is continuing to show signs of improvement despite indications of slowing growth seen in other areas of the economy.

An annualized 4.37 million existing homes were sold in June 2012, which was a 5.4% decline from the upwardly revised 4.62 million annualized units sold in May (initially reported as 4.55 million units). The level of sales in June was below market expectations for a reading of 4.62 million. The slowing in resale activity in June reflected decreases in sales of both single-family homes (-5.1%), and sales of condos and co-ops (-7.8%). Weakness was broad-based as well with declines seen in the Northeast (-11.5%), West (-6.9%), South (-4.4%), and Midwest (-1.9%).

The absolute number of existing homes available for sale fell by 3.2% to 2.39 million units in June. The report noted that the declining inventory of homes on the market, particularly those at the lower end of the pricing spectrum, contributed to the pullback in the pace of sales in the month by holding back “entry level activity”. At the current pace of sales, it would take 6.6 months to clear this inventory of unsold homes, which is up from May’s downwardly revised reading of 6.4 (initially reported as 6.6 months).

The national median sales price of existing homes rose on a year-over-year basis for the fourth straight month in June with the pace of increase accelerating to 7.9% from the 6.5% rate seen in the previous month and representing the largest such increase since February 2006. The unadjusted median price of $189,400 represented its highest level since September 2008. The strong gain in prices comes as distressed sales (foreclosures and short sales that typically sell at steep discounts) accounted for 25% of total sales, which was unchanged from the prior month but down from 30% in June 2011.

While today’s reported decline in the pace of existing home sales in June is disappointing, the decline in housing inventories and shrinking market share of distressed properties provide some support to home price growth and lend further credence to the anecdotal assessment released yesterday in the Fed’s Beige Book that the housing sector is continuing to show signs of improvement despite indications of slowing growth seen in other areas of the economy. We expect that the continued gradual improvement of the economy will support the ongoing upward momentum in residential real estate markets, thereby helping to support the eventual return to “normal” housing market conditions, although that is likely to occur over years rather than quarters.

U.S. initial jobless claims surge in the week ending July 14.

• US initial jobless rose by 34,000 to 386,000 in the week ending July 14, 2012, which more than retraced the previous week’s 24,000 drop to an upwardly revised 352,000 level (previously reported as 350,000). The rise left the level of claims well above market expectations for a 364,000 reading in the latest week.
• Despite the jump in the latest week, the four-week moving average of initial claims slipped to 375,500 from 377,000 (previously reported as 376,500).
• The rise in initial claims in the latest week, which also happened to coincide with the payroll employment survey week for July, confirmed that much of the outsized drop in the previous week likely reflected difficulties in seasonally adjusting the data in the face of summer shutdowns for retooling in the auto sector rather than underlying improvement. This volatility will likely continue to affect the data in coming weeks with a ‘clean’ reading not likely to be released until August.

US initial unemployment insurance claims jumped by a larger than expected 34,000 to 386,000 in the week ending July 14, 2012 to more than retrace a 24,000 drop to a 352,000 level the previous week. The labour department reportedly noted that much of the volatility for the two weeks likely reflected difficulties seasonally adjusting the data during traditional auto retooling shutdowns in July. The four-week moving average of initial claims dipped to 375,500 from 377,000 the previous week. Continuing claims inched up by 1,000 to 3,314,000 in the week ending July 7, 2012 from 3,313,000 the previous week.

The rise in initial claims in the latest week, which also happened to coincide with the payroll employment survey week for July, confirmed that much of the outsized drop in the previous week likely reflected difficulties seasonally adjusting the data rather than underlying improvement. The weekly initial claims data are notoriously volatile in July due to difficulties adjusting for normal summer retooling shutdowns in the auto industry. This volatility will likely continue to affect the data in coming weeks with a ‘clean’ reading not likely to be released until August. With that said, the four-week moving average, which controls for some of this auto sector volatility, dropped to 375,000 from 387,500 the week of the June payroll employment survey. This result provided some indication of a modest underlying improvement.

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.

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