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NEW YORK (CNN/Money) -
Sales of existing homes slowed in July from their record pace as the latest reading on the strength of the real estate market came in below Wall Street forecasts.
The National Association of Realtors (NAR) said sales of existing homes fell to an annual rate of 7.16 million in July from the revised 7.35 million sales rate in June. The pace of sales in July was still the third strongest month on record.
Economists surveyed by Briefing.com had forecast the pace of home sales would slip to 7.25 million in July.
"This is a big number any way you slice it, and housing is continuing to stimulate the overall economy," said a statement from David Lereah, the trade group's chief economist. The 7.16 million sales pace trailed only June and April 2005, when sales came in a 7.18 million rate.
Signs of a cooling market
Still, the weaker-than-forecasted number, coupled with growing attention about the importance of the real estate market to consumer spending and the economy, sent stocks lower on Wall Street.
"Reading through the housing tea leaves suggests that the housing boom is becoming a bit long in the tooth," said Anthony Chan, senior economist with JP Morgan Asset Management. "And while this outcome does not necessarily signal a collapse in activity just around the corner, it does suggest that the housing sector's best days are probably behind us."
One sign of a cooling housing market is that home prices were essentially flat, as the national measures of both median and average home prices increased less than 1 percent from June levels.
The median price, at which half the homes sold cost more and half cost less, came in at $218,000 compared to $217,000 a year earlier, while the average home price edged up to $267,000 from $266,000.
Still, both price measures rose from year-earlier levels, with the median price up 14 percent while average prices jumped 9.9 percent.
The supply of homes on the market rose to 2.75 million, the highest level since May 1988, when there were 2.85 million homes on the market. But home sales are selling at such a fast pace today that the current supply equals only a 4.6-month supply of homes, compared to a 9.4-month supply of in 1988.
The last time there was a 4.6-month supply of homes was in November 2003, when the housing market was considered very strong. In fact the average for 2003, which was at that point a record year for home sales, was 4.6 months. In 2002, when sales were also strong, the average was a 4.7-month supply.
One housing officials said a six-month supply creates an equilibrium between buyers and sellers, and anything less than that often prompts multiple bids for homes that can drive up prices.
"Housing inventory levels improved in July, but they're still quite lean by historic standards," said NAR President Al Mansell of Salt Lake City.
"If the supply of homes rises, it should reduce competition between buyers and take some of the pressure off of prices," he said. "Even so, we expect home price appreciation to remain above normal over the next year."
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