By Northern Trust

Sales of all existing homes fell 5.1% to an annual rate of 5.37 million units in June, while that of existing single-family homes dropped 5.6% to an annual rate of 4.70 million units.  Purchases of single-family existing homes have risen 16.3% from the trough in November 2008 (4.04 million units) largely lifted by the first-time home buyer tax credit program.  Regionally, sales of existing homes fell in the Midwest (-7.5%), South (-6.5%), and West (-9.3%) but advanced 7.9% in the Northeast

The National Association of Realtors indicated that 32% of existing homes sold were distressed properties, which is virtually unchanged from a year ago and May 2010 (see chart 2).

Despite the persistence of distressed homes for sale, the median price of single-family home at $184,200 in June is up 5.6% from a month ago and 1.3% higher than the median price in June 2009.  This tentative good news follows a sharp drop in home prices such that the current median price of an existing single-family home is still down 20% from the peak in July 2006 ($230,900).  According to the National Association of Realtors, existing home prices were higher in 10 out of 19 metro areas in June compared with prices a year ago and several homes bought to take advantage of the first-time home buyer program have yet to close.

It appears that tax credits supported sales and lifted prices in recent months.  The elevated level of distressed properties, the number of unsold homes (see chart 4) and the soft employment numbers raise concern about the near term sales trend of homes.  The seasonally adjusted inventory of unsold existing single homes rose to 8.2-month supply in June vs. 8.0-month mark in May, which continues to hold above the historical median.

Index of Leading Indicators Confirms Slowing Economic Conditions

The Conference Board's Index of Leading Economic Indicators (LEI) fell 0.2% in June, the second monthly drop in three months.  The year-to-year change of the LEI (quarterly average) has a strong positive correlation with year-to-year change in real GDP. The decelerating trend is consistent with our forecast for the growth of real GDP in the second-half of the year.

In June, five of the ten indicators included in the composite index advanced -- interest rate spread, real money supply, building permits, the index of consumer expectations, and manufacturers' new orders for consumer goods and materials. The negative contributions were from average weekly manufacturing hours, the index of supplier deliveries, stock prices, and average weekly initial claims for unemployment insurance.  Forecasts of money supply and orders of consumer durables are part of the forecast in addition to the steady reading for manufacturers' new orders for nondefense capital goods.

Jobless Claims - Noisy Data, But Underlying Message is Unchanged

Initial jobless rose 37,000 to 464,000 during the week ended July 17.  A large part of the increase reflects auto plant shutdowns in the summer for retooling.  GM's delayed shutdown for the summer led to the large decline and gain in the past two weeks. Continuing claims, which lag initial jobless claims by one week fell 223,000 to 4.487 million and the insured unemployment rate was down two notches to 3.5%.

Continuing claims under the Extended Unemployment Compensation (EUC) program fell 404,049 during the week ended July 3, due to the expiration of the program.  Congress has reinstated funding for the program, which should result in a reversal of unemployment insurance claims in the weeks ahead.  These claims lag initial jobless claims by two weeks.  The underlying message of weakness in hiring has not changed.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.