Poor May Existing Home Sales

Pending Home Sales Index typically leads existing home sales by one to two months - the former measuring signed contracts and the latter metric covering completed (closed) homes sales. The significantly larger decline in the PHSI indicates that existing home sales may have further to fall in June before any signs of improvement.

Existing home sales fell again in May, a casualty of the soft economy and falling house prices. National Association of Realtors reported a 3.8 percent decline in existing home sales in May, down to a seasonally adjusted annual rate of 4.81 million units. This follows a drop of 0.8 percent in April.

Economic activity has been sluggish in recent months, with GDP growth slowing to 1.8 percent in the first quarter and a marked decline in the rate of new job creation during May. In addition, the stock market has been volatile and consumer confidence turned lower amid these concerns.

Thus, it is no surprise that consumer spending, especially on major purchases such as housing, has also slowed. The recent declines in house prices, with the Case-Shiller house price index down 4.2 percent and the Federal Housing Finance Agency HPI 3.5 percent lower in the first quarter of 2011, are also having an impact.

The decline in May existing home sales was predicted by the pending home sales index (PHSI), which slumped 11.3 percent in April.

- Courtesy of NAHB