Despite a bit of growth in the existing home inventory and a bit of a dip in new home prices, sales of each were down in June. It was the third straight month that existing homes were down, and they are now lower year-over-year.
The Libor may not be a familiar name, but it does underpin a lot of loans. It appears set to disappear shortly and the financial world is scrambling.
Home sales had a tough time of it in June, belying the months’ reputation as one of the best for residential real estate. Existing home sales fell for the third straight month while sales of newly constructed homes have alternated between up and down since March. The pattern prevailed.
The new home dive was the deeper, 5.3% compared to May, with sales estimated at an annual rate of 631,000. Further, the May number, originally reported at 689,000, a 6.7% increase, was revised to 666,000, reducing the gain to 3.9%. The June loss would have been worse but for an exceptionally strong +37% showing in the Northeast. The other three regions posted declines and the West is now lagging June 2017 by 15%.
Existing home sales were fewer than in May, but only by a slight 0.6%. However, three months losses have put sales behind last year by 2.2%. The inventory rose 4.3% to 1.95 million units. This is still far behind demand but notable as the first year-over-year increase since June 2015.
If there was a bright spot in the reports it was new home prices. Both median and average prices were lower than a year earlier for the second month. We attributed the May downturn to the large portion of transactions in the South where prices tend to be lower. This month the market was dominated by homes in the high-priced Northeast. We hope this means builders are making progress in their efforts to reduce construction costs.
What’s a Libor?
Perhaps you have asked yourself that question. Probably not, but either way you probably don’t have much time to find out. The London interbank offered rate is how much one bank needs to pay to borrow from another and it seems it may cease to be by 2021.
Why should you care? If you have an adjustable rate mortgage on your home or a student loan, the Libor is the index by which those loans periodically adjust. For example, ARMs are commonly written with an adjustment such as Libor plus 2 or 2.5 percentage points. It also underpins many commercial loans and $200 trillion in derivative contracts.
The index is the result of a daily survey of banks and is easily manipulated if those banks collude. That happened in 2008; a lot of banks were fined, and some bankers went to jail. The British government has shored up the Libor since the scandal but is about to let it disappear. The financial world is now scrambling to find and implement a replacement.
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