May housing stats cause some hand wringing

Are we doomed to see a second dip in housing? Although the number of closings continued to increase in May, some of the future indicators for sales dropped on a month to month basis which had many financial pundits forecasting that lagging home sales could weigh on the broader economy.

That said, we continued to see some positive trends in Cincinnati that bodes well for the rest of the year. Some of the key statistics include:

• Closings were up 25.43% on a yearly basis.
  
• Inventory to sales dropped to 6.8 months. This is the lowest we've seen since 2006.
  
• The average sales price increased to $159.1K
  

(see the latest May charts for Cincinnati)

On the national front, the items causing the most commotion were new mortgage purchase applications, adjusted existing home sales, and new home sales. Existing home sales raised concern when the "seasonally adjusted" month over month figures showed a 2.2% decrease from April when most expected an increase. The rate was still 19.2% over May of 2009.

(June 1 update: the latest release for May's pending home sales illustrated that buyers have gone back into wait mode as the rate fell 30% in May from April, and even fell 15.9% on a year over year basis.)

Mortgage purchase applications continued to fall even as rates are at the lowest since 1970. In the latest weekly update, purchase applications decreased another 3.3%

The hardest hit area continues to be new construction. New home sales were at an all time low to an adjusted rate of 300,000 even as builders continue to make adjustments in pricing and home size. Construction is likely to lag historical norms until inventory balances with "new household formation" (i.e., the need for new homes due to population growth, new buyers entering the market, etc.). Not surprisingly, new home formation has fallen sharply during the recession (between 2008 and 2009, the rate fell to an estimated 398,000 for the year from over 1 million in previous years).

On the plus side, the latest Case-Shiller price index continued to show a slight gain which was perhaps a bit of surprise to many. If nothing else, this suggests that while sales may be off for the next few months, we may not see significant further deterioration in pricing while the market rebuilds.