Thursday, July 24, 2008

Sales of Existing Homes Drop to Lowest Level in More Than Decade

Sales of Existing Homes Decline to 10-Year Low

By Bob Willis

Go To Original

Sales of previously owned U.S. homes fell in June to the lowest level in a decade as tumbling real- estate prices and consumer confidence signal no end in sight to a housing recession now in its third year.

Resales dropped 2.6 percent to a lower-than-forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median IND' ))">home price dropped 6.1 percent from June of last year.

The housing slump may deepen further after mortgage rates climbed to the highest in a year this month and turmoil engulfed Fannie Mae and Freddie Mac, which account for more than two- thirds of new home-loan financing. A record 18.6 million homes IND' ))">stood empty in the last three months as the industry's recession reverberated through communities, separate figures showed today.

The NAR report ‘‘is, unfortunately, not telling us about an end'' to the slide, said David Resler, chief economist at Nomura Securities International Inc. in New York. ‘‘Housing is going to be a non-contributor, if not a drag, on the overall economy.''

The Standard & Poor's Supercomposite Homebuilding Index dropped 4.9 percent to 480.61 at 10:33 a.m. in New York. By comparison, the Standard & Poor's 500 Stock Index lost 0.6 percent, to 1,274.06.

Economists forecast home resales would fall to a 4.94 million pace, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from a 4.79 million pace to 5.1 million rate.

Jobless Claims

The Labor Department earlier today reported that first-time claims for unemployment benefits rose last week to the highest in almost four months, a sign the slowing economy is weakening the labor market. Applications increased by 34,000 to 406,000 in the week ended July 19.

Compared with a year earlier, existing home sales were down 16 percent in June. Purchases are down by about a third from a record of 7.25 million reached in September 2005.

The number of previously owned unsold homes on the market at the end of June rose to 4.49 million from 4.482 million in May. The total represented 11.1 IND' ))">months' supply at the current sales pace. The agents' group has said that a five-to-six month's supply reflects a balanced market.

‘‘The biggest problem is that we've not yet seen inventories come down,'' Paul Puryear, managing director of Raymond James & Associates Inc. in St. Petersburg, Florida, said in an interview with Bloomberg Radio yesterday. The housing market isn't likely to recover until at least 2009 or 2010, he said.

Property Types

Sales of existing single-family homes declined 3.2 percent to an annual rate of 4.27 million. Purchases of IND' ))">condos and co-ops increased 1.7 percent to a 590,000 pace.

The median sales price fell to $215,100 from $229,000 in June 2007. The median cost of a single-family home decreased 6.7 percent to $213,800, while that of condominiums and co-ops fell 2.2 percent to $224,200.

Purchases decreased in three of four regions, led by a 6.6 percent decline in the Northeast. Sales rose 1 percent in the West, which also showed a 17 percent drop in the median price, the biggest of any region.

The glut of homes may be even greater because not all foreclosed properties are counted by the Realtors group. The group only includes foreclosures that have been listed on the multiple listings service.

Most of the Market

Existing home sales account for about 85 percent of the U.S. housing market, while new home sales make up the rest. Monthly figures for resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier.

More Americans are walking away from their homes as property values slump and borrowing costs on adjustable-rate mortgages reset higher. Bank seizures increased a record 171 percent in June from a year ago and foreclosure filings rose 53 percent, RealtyTrac Inc., a seller of default data, reported this month.

Home prices nationwide have fallen 18 percent on average from their July 2006 peak, according to the S&P/Case-Shiller index of 20 metropolitan areas. The drop in values may be giving those buyers still able to get financing reason to hesitate.

Consumer sentiment dropped in June to the lowest level in 28 years, according to the Reuters/University of Michigan survey, and the economy lost jobs for a sixth straight month, adding to reasons home buyers are sidelined.

Fannie, Freddie

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to survive the meltdown in subprime lending has heightened the credit crisis and may further curtail access to loans.

There is ‘‘no sign of a recovery in housing'' this year, Caterpillar Inc., the world's largest maker of earthmoving equipment, said in a statement this week. The company said second-quarter profit climbed 34 percent, exceeding analysts' estimates, on demand for backhoes and mining tools in China and the Middle East.

Caterpillar's Chief Executive Officer Jim Owens said he expects the U.S. economy, including the housing market, to begin recovering next year.

‘‘We will get this problem behind us,'' Owens said in a July 22 interview with Bloomberg Television. ‘‘It will probably take another six months to a year, but it will come back.''

No comments: