Existing home sales declined 2.2% in May from April but remained elevated as home buyers rushed to settle before the June 30 deadline.  Single family sales declined 1.6% to an annual rate of 4.9 million.  Even with the May decline, the April-May average was 11% better than the first quarter average for total sales and 12% increase for single family sales.

The decline is more likely the result of a significant increase in April as well as some clogging in the closing pipeline.  Home buyers must close by the end of June and the rush has caused some congestion in the industry. However, a proposal pending in the Senate (Section 228 of H.R.4213) would extend the closing deadline for sales under contract prior to May 1, 2010.  The present law June 30 deadline for the tax credit would be extended until the end of September.  It is not clear whether this proposal will become law.

First-time home buyers continue to be a significant share of the market since those buyers do not have to sell a home.  Their heavy participation means existing home owners are able to sell their home but may not yet have committed to purchase another home until their sale is certain. Those purchases will not qualify for the credit but will be one of the continuing boosts to the housing market beyond the home buyer credit.

The inventory of existing homes fell almost 5% to just under an 8 month supply and similar to levels one year ago.  Low interest rates and low turn-over rates for the last two years would suggest many home owners continue to wait to put their home on the market until the housing market in their area firms up and job prospects are more certain.  Both of those factors do appear to be at the horizon in many areas and hence current home owners are likely to continue listing their homes as the overall economy cures.

The slight down tick today does not change the expectation that the housing market is on the mend; it just reminds us that the recovery will not be smooth.