U.S. Home Resales Drop, Inventories Rise to Record as Housing Woes Persist
By Shobhana Chandra
Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the 27-month housing slump.
Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price fell 8 percent from April last year, the second-biggest drop.
‘‘There is no indication that things are improving,'' said Christopher Low, chief economist at FTN Financial in New York, who forecast sales would drop to a 4.9 million pace. ‘‘Inventories will stay out of balance at least until the end of 2009 and prices will keep falling.''
Defaults on subprime mortgages have prompted lenders to restrict credit, while falling property values have given buyers who are still able to get financing reason to delay purchases. The slide in home values may hurt consumer spending, which accounts for more than two-thirds of the economy.
Treasury securities, which had risen before the report, stayed higher. Benchmark 10-year note yields fell to 3.84 percent at 11:54 a.m. in New York, from 3.92 percent late yesterday. The Standard & Poor's 500 stock index dropped 1.2 percent to 1,377.5.
Resales were forecast to fall 1.6 percent to a 4.85 million annual rate, according to the median forecast of 67 economists in a Bloomberg News survey.
Sales were down 18 percent compared with April 2007.
Glut of Homes
The number of previously owned unsold homes on the market at the end of April jumped to 4.55 million from 4.12 million in March. The total represented 11.2 months' supply at the current sales pace, the highest on record and up from 10 months at the end of the prior month.
The median price of an existing home fell to $202,300 from $219,900 in April 2007.
‘‘We had an unrealistic run-up of prices and the faster they come back down to the real world the better,'' William Cheney, chief economist at John Hancock Financial Services in Boston, said in an interview with Bloomberg Television. ‘‘The faster prices come down, the quicker we can get back to an equilibrium where we actually have transactions.''
Property values may drop more than 30 percent from their peak in 2006, Robert Shiller, an economics professor at Yale University and co-creator of a housing-price index, said in an interview with the London-based Times last month.
The S&P/Case-Shiller March home-price index covering 20 metropolitan regions is due May 27. Through February, the measure was down 15 percent from the record set in July 2006. Shiller was unavailable for comment today.
Existing home sales account for about 85 percent of the U.S. housing market while new home sales make up the rest. Monthly figures on resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier.
Purchases of new homes, which are recorded when a contract is signed, are considered a more timely barometer of the market. The Commerce Department's report is due next week.
Today's report showed resales of single-family homes dropped 0.5 percent to an annual rate of 4.34 million. Sales of condos and co-ops declined 5.2 percent to a 550,000 rate.
Purchases decreased in two of four regions, led by a 6 percent decline in the Midwest.
Federal Reserve policy makers, who cut their 2008 growth estimate by almost 1 percentage point, said ‘‘tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters,'' according to minutes of their April meeting released on May 21.
The economy will expand by 0.3 percent to 1.2 percent this year, policy makers estimated. Their efforts to support growth include 2.25 percentage points of reductions in the benchmark interest rate this year, the most in almost two decades.
Recent reports signal little relief for the housing market. The number of banks reporting tighter lending standards approached a record in April, a Fed survey showed. Builders broke ground on single-family homes last month at the slowest pace in 17 years, Commerce figures showed.
Residential construction, which has subtracted from economic growth since the first three months of 2006, will remain a drag through most of this year.
Restricted access to credit will continue to depress property values, eroding household wealth as home equity shrinks. The declines are likely to weaken consumer spending further.
Housing-related firms have faced the brunt of the economic slump. Home Depot Inc., the largest home-improvement retailer, this week said full-year earnings may be at the low end of its prior forecast. Rival Lowe's Cos. said 2008 sales won't meet its estimates. First-quarter profit plunged 66 percent at Home Depot and 18 percent at Lowe's as consumers cut back on remodeling.
‘‘The housing and home-improvement markets remain very difficult,'' Home Depot Chief Executive Officer Frank Blake said on a May 20 conference call. There will be ‘‘more risks than opportunities through the remainder of the year.''
The worsening housing market signals that the Bush administration's efforts to contain the slump aren't working.
The U.S. Senate Banking Committee this week approved housing legislation to stem foreclosures by insuring as much as $300 billion in mortgages. The plan, yet to be approved by the full Senate, also would create a new regulator for Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies.