For a fifth straight month, existing-home sales in the U.S. slipped, falling to the slowest pace in five years according to a report released Monday by the National Association of Realtors (NAR). Existing-home sales, which includes single-family, townhomes, condominiums, and co-ops, dropped 0.2 percent in July to a seasonally adjusted annual rate of 5.75 million units; sales are also down 9 percent year over year.

Lawrence Yun, an NAR senior economist, said the market is holding on despite temporary mortgage disruptions. "[Existing-]home sales probably would [otherwise] be rising in the absence of the mortgage liquidity issues of the past two months," Yun said. "Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize."

Inventory Hits Highest Level Since October 1991

Monday's report also revealed that inventory of unsold single-family homes for sale rose to 9.2 months (a 16-year high) from 9.0 months from June to July. The amount of unsold inventory is the most telling fact of the NAR report, says Nigel Gault, U.S. economist for Global Insight, a Boston-based company that specializes in economic and financial analysis. "It suggests that the market is soft and getting softer," Gault told BUILDER Online. "Unfortunately, worse news lies ahead. "

The July data, according to Gault, reflects sales that were made in May or June, well before tighter credit standards occurred in July and August. That will mean more foreclosures, increasing supply, and fewer qualified buyers, reducing demand, adding up to lower home sales and lower prices. The outlook, says Gault, makes it "hard to see a bottom before mid-2008."

"The next couple of quarters are going to look very poor," Gault added.

With median single-family home prices down only 1 percent from the July 2006 all-time high of $230,900, Carl Reichardt, Wachovia Capital Markets senior equity research analyst, says selling prices must drop.

"Until prices recede more dramatically, we do not believe we can see a meaningful reduction in inventory or significant improvement in sales pace," Reichardt said.

Regional Breakdown

Regionally, existing-home sales in the West rose 1.8 percent in July to an annual pace of 1.12 million, but are 15.2 percent below a year ago. The median price in the West was $349,400, up 0.9 percent from July 2006.

Existing-home sales in the Northeast increased 1.0 percent to a level of 1.02 million in July, but are 2.9 percent lower than July 2006. The median existing-home price in the Northeast was $290,900, up 5.9 percent from a year ago.Existing-home sales in the South were unchanged at an annual rate of 2.26 million in July, but are 10.7 percent below a year ago. The median price in the South was $186,300, down 3.2 percent from July 2006.

Existing-home sales in the Midwest fell 2.2 percent in July to a level of 1.35 million, and are 5.6 percent below July 2006. The median price in the Midwest was $173,800, which is 1.8 percent below a year ago.