Housing Supply Spikes

Updated from 10:33 a.m. EDT

Existing-home sales remained flat from June to July, but inventories spiked to a new high, demonstrating that the U.S. housing market continues to struggle.

Sales of existing homes and condos totaled an annualized rate of 5.75 million units in July, down from the upwardly revised level of 5.76 million in June, the National Association of Realtors said Monday.

Economists expected 5.7 million sales, according to estimates from Reuters. The sales level is 9% below a year earlier.

The number of homes on the market rose 5.1% to 4.59 million units in July, representing 9.6 months of supply at the current sales rate. In June, the inventories were at 9.1 months of supply.

Median home prices fell 0.6% from a year earlier to $228,900.

Homebuilder stocks fell on the data. Hovnanian (HOV Quote) was down 2.6% to $11.67, Toll Brothers(TOL Quote) was slipping 2.1% to $22.60, and KB Home(KBH Quote) was falling 1.8% to $31.42 in morning trading.

The data come after the Commerce Department's Friday report that sales of new homes unexpectedly rose in July. That data, however, represent contract signings and don't take into account cancellations, which have been climbing.

The July housing numbers overall are being taken with a grain of salt by housing industry watchers, since the numbers reflect sales prior to the August credit crunch. Economists continue to say that August will be the bellwether month to see how bad the housing market has become.

Nonetheless, the fact that inventory continues to get worse is bad news for homebuilders and homeowners looking to sell their homes.

"There is certainly a lot of inventory to work off in the existing and new home market," says Adam York, an economic analyst with Wachovia.

The high levels of housing supply will continue to put downward pressure on home prices, York warns.

Wachovia expects housing sales to decline further in coming months because of rising mortgage rates and tighter lending standards.