In defense of Reuters, they didn’t use the “U” word first.  The decline of existing-home sales caught the National Association of Realtors by surprise as well:

Existing-home sales eased in June as contract cancellations spiked unexpectedly, although prices were up slightly, according to the National Association of Realtors®.

Sales gains in the Midwest and South were offset by declines in the Northeast and West. Single-family home sales were stable while the condo sector weakened.

Total existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8 percent below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit.

Reuters basically rehashes the NAR report, but notes that the sales decline year-on-year is now 8.8%, indicating that we’re still plumbing for the bottom.  They provide a roundup of analyses that basically states that we should keep expecting the “unexpected,” a message one hopes that Reuters’ own economists start heeding.  But Paul Dales points out the spike in cancellations as especially worrisome.

“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.”

Could that “something” be the increase in unemployment we’ve seen over the last three months?  As people lose jobs, they have to postpone major purchases as new jobs are difficult to find in this economy.  Bank lending got tightened considerably in the aftermath of the 2008 collapse; at the moment, they’re under pressure to loosen lending, not tighten it, which makes that an unlikely explanation.

The lack of jobs may or may not be causing the one-month spike in cancellations, but it’s certainly causing the housing market to remain mired at near-historic lows for sales.  Until we create more qualified homebuyers, we won’t move the inventory already on the market, not even the foreclosures and distressed houses that comprised 30% of sales in June.  We can and should expect more of the “unexpected” until we get reliable and massive job creation back in gear.

Update: Reuters runs another article today on a substantial increase in mortgage applications, the largest increase in four months, but that turns out to be due to refinancing applications prompted by low interest rates.  On actual purchases, the numbers don’t look good at all:

The MBA’s seasonally adjusted index of refinancing applications soared 23.1 percent, but the gauge of loan requests for home purchases dipped 0.1 percent.

The refinance share of mortgage activity rose to 70.1 percent of total applications from 65.6 percent the week before.

People are hunkering down in their current homes rather than looking to move out and up.  That’s not good news for the housing markets, as those refinancing today will have to wait around 3-5 years for a purchase in order to avoid losing money on the decision.