Existing home sales declined 0.8% in June
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Implications:  Sales of existing homes fell to a seven-month low in June.  The National Association of Realtors said that cancelled contracts to buy existing homes increased to 16% in June from a more typical 9% - 10% over the past year. The NAR did not have an explanation for this spike in cancellations, but it could be due to tough credit conditions. 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 29% of sales, versus a traditional share of 10%.  The silver lining in today's report was that median existing home prices are up 0.8% from a year ago and average prices are up 2.7%. Going into the second half of the year, we anticipate a rise in the pace of sales. After dropping 11.3% in April, pending home sales (contracts on existing homes) increased 8.2% in May. This should translate into a gain in closings in July. Meanwhile, worker pay is rising, job growth should be reaccelerating, mortgage rates remain very low, and home prices are extremely attractive. 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 a long-term trend of about 5.5 million units annually.

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Posted on Wednesday, July 20, 2011 @ 11:15 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.