An increase in contract cancellations caused a decline in the sales of existing homes in June.  Still, according to the National Association of Realtors® (NAR), there was a slight rise in home prices.

Lawrence Yun, NAR chief economist, said that home sales had been trending up over the last few months but there were a lot of issues weighing down the market.  The underlying reason for the elevated cancellations of pending sales contracts is unclear "but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year."

Existing home sales, including sales of single family houses, townhomes, condominiums, and cooperatives, declined 0.8 percent from May figures and 8.8 percent from the numbers in June 2010, a month when homebuyers were scrambling to complete purchases under the deadline to qualify for federal tax credits.  Sales last month were at a seasonally adjusted annual rate of 4.77 million compared to 4.81 million in May and 5.23 million one year earlier.

The decline in sales was most strongly felt in the condo and coop sectors which were down 7.0 percent to a seasonally adjusted annual rate of 530,000 from 570,000 in May and down 18 percent from one year earlier when the rate was 646,000.  Single-family home sales were unchanged at a seasonally adjusted annual rate of 4.24 million in June, but are 7.4 percent below the 4.58 million pace in June 2010.  

Condo and coop sales were down, in part, because of a decline in first time buyers which represented 31 percent of purchases in May compared to 36 percent in June and 43 percent in June 2010 when the tax credit had enticed a lot of first-time buyers into the market. First time buyers make up a large part of the market for condos and coops. Repeat buyers accounted for 50 percent of sales, up from 45 percent in May, an increase NAR said was a normal seasonal phenomenon.  The remaining 19 percent of sales were to investors, unchanged from May.  Investors made up the bulk of the 29 percent of sales that were cash transactions.

NAR President Ron Phipps noted that lower mortgage loan limits, due to go into effect on October 1, already are having an impact. "Some lenders are placing lower loan limits on current contracts in anticipation they may not close before the end of September. As a result, some contracts may be getting cancelled because certain buyers are unwilling or unable to obtain a more costly jumbo mortgage," he said.

Prices of single family homes rose slightly to a median of $184,600, while the median price of a condo was $182,300.  The prices were up 0.6 percent and 1.8 percent respectively from June 2010.  Foreclosures and short sales which generally sell at deep discounts accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.

Sales in the Midwest and South regions rose 1.0 percent and 0.5 percent respectively from May while sales in the Northeast were down 5.2 percent and in the West 1.7 percent.  The median price in the Northeast was $261,000, up 3.1 percent from a year earlier.  In the Midwest the price was down 5.3 percent to $147,700; and in the South there was a small decrease of 0.1 percent to 159,100.  In the West, however the median price was up 9.5 percent year-over-year to $240,000.

Total housing inventory at the end of June rose 3.3 percent to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May.

From Reuters: ECONOMISTS REACT...

MICHELLE MEYER, SENIOR ECONOMIST, BANK OF AMERICA MERRILL LYNCH, NEW YORK

"It's still pretty clear that there are still a lot of fundamental problems in the housing market. There is too much supply and there is not enough demand. There are a lot of distressed properties which are putting a lot of downward pressure on housing prices.

"The housing market is far from normal. We are going to see some signs of improvement in the multi-family sector, but the single family sector is still in a very weak state. There is a long road ahead before we see a well-functioning housing market."

PAUL DALES, SENIOR U.S. ECONOMIST, TORONTO, CANADA

"It's a disappointment. What has happened in recent months is housing activity appears to be depressed by unusually bad weather in April and May, which prevents people from going to look at homes and buy them. We were hoping we would get a bounce back but that hasn't appeared to happen, which is a concern.

"People may be put off by economic conditions and outlook. The recent slowdown in the economy might be having a more marked impact on the housing demand and that is a concern for the future.

"DNR has stated that the cancellation rate of contract signings rose from 4 percent to 16 percent. That is very unusual. Normally when a contract is signed, the house is sold. Something has happened that has led to more cancellations. It may be jitters from the recent economic conditions or because banks may have tightened lending conditions, meaning that the financing a buyer hoped to get was no longer available. We don't know for sure but something seems to have rocked the boat a little bit."

BRIAN DOLAN, CHIEF STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY

"This is a look at what's really going on in the housing market and we can see the market is still quite anemic. It's going to be a multi-year process to get out of this."

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

"It came in on the lower side of expectations. There is really nothing new to say about housing, the market continues to be really soft and demand is really definitely lackluster. There are plenty of headwinds facing housing and this continues to suggest that we are bumping along the bottom."

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"It's a disappointment on the face of it, however, as we've continued to highlight, given the supply and demand balance I don't think we should be all that surprised.

"On the face of it the number may not be as bad as the headline suggests. The decline came in condos. Single family housing was relatively flat on the month.

"A couple of interesting nuggets from within the report: First-time buyers actually slipped to 31 percent to 36 percent. That's interesting because first-time buyers tend to gravitate toward condos. Also, if you look at what prices did, they rose on a month over month basis pretty significantly, and that could because first-time buyers slipped.

"We're not expecting all that much from this sector anyway this year."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK

"It's like a broken record. The good news is bad news. It's steady and it's been steady for five months. But the pace is running well below historical averages. It's disappointing. But the market knows that the housing recovery is going to be extremely slow and they're fixated on the sovereign debt issues. So it won't generate much interest."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

"Sales of previously-owned homes surprised to the downside, falling to an annualized sales rate of 4.77mln homes. This contradicts pending sales figures in last month's report which published the first take on May's numbers -- a moderate recovery of 8.2% after contracts fell 11.3% -- implying these buyers would close the deal in the following month. That report undoubtedly encouraged economists to expect a small rise in closed contracts (market forecast 4.9mln), however the number of cancellations -- buyers that back out of the contract -- shot up to 16% in June compared to the habitual norm of less than 10%. June's numbers reflect a continued slowing in activity that is adding to the slack in the housing market making their promising Spring season unimpressive. In the first half of the selling year, EHS' losses have proven more prevalent than the gains. Not only has EHS' monthly movement shown four declines, the declines are steeper than the gains as we can see since sales have yet to climb back to the 5.4mln sales pace posted in the first month of the year)."