Existing home sales declined 3.8% in May to an annual rate of 4.81 million units
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Implications:  As expected, sales of existing homes fell to a six-month low in May. Credit conditions remain very tight. Anyone who has taken out a mortgage lately knows the lending process can be brutal, even for those willing and able to make a down-payment of 20%. No wonder cash transactions now account for about 30% of sales, versus a traditional share of 10%. However, comments today from the National Association of Realtors suggest pending home sales, which are contracts on existing homes, will be up about 15% in May (data to be released on June 29). If so, existing homes sales, which are counted at closing, should bounce back to almost a 5 million annual rate in June. So today's report is likely the lowest level that sales will hit all year. Several factors should help boost home sales going forward, including higher weekly pay, better job growth, low mortgage rates, and great prices.  As a result of these factors, housing affordability remains close to all-time highs.  Meanwhile, rental vacancies are falling fast, which will eventually spur enough rent increases to make home ownership more attractive. Although the process will be slow and volatile, we still expect sales of existing homes to climb back to their long-term trend of about 5.5 million units annually.

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Posted on Tuesday, June 21, 2011 @ 10:48 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.