Existing home sales keep falling
Data show continued weakness in all sections of the U.S.
The Associated Press
July 25, 2007
WASHINGTON - Sales of existing homes fell for a fourth straight month in June and even a small increase in home prices was not enough to lift the gloom surrounding the housing industry.
The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4½ years.
The median price of a new home edged up slightly to $230,300 in June, a 0.1 percent increase from the sales price a year ago. That was the first year-over-year price increase in 11 months but analysts cautioned that it would take more months to determine whether the downward trend in prices has finally stabilized.
The decline in home sales was larger than had been expected and served to underscore the problems in housing, which is currently in the worst slump in 16 years.
Federal Reserve Chairman Ben Bernanke told Congress last week that he expected housing demand to stabilize and housing to be a less severe drag on growth in the coming months.
However, private economists said the existing home sales report raised serious questions about that assessment. They noted that existing home sales were falling at an annual rate of 28 percent in the second quarter, the steepest plunge so far in the downturn.
“Housing is contracting at an accelerating pace, taking out with a vengeance the brief stabilization at the turn of the year,” said Ian Shepherdson, chief economist at High Frequency Economics, a private forecasting firm.
The housing downturn is occurring after five boom years in which sales of both new and existing homes set records with home prices soaring by double-digit rates. However, starting in 2006, sales have slumped as mortgage rates rose and prospective buyers balked at the price levels they were seeing in many parts of the country.
Those problems have been exacerbated in recent months by spreading problems in the subprime mortgage market, which offered loans to buyers with spotty credit histories. Rising defaults in those areas are dumping more homes onto an already glutted market.
The sales declines covered all parts of the country. Sales were down 7.3 percent in the Northeast and 6.8 percent in the West. Sales fell 2.8 percent in the Midwest and 1.7 percent in the South.
The supply of unsold homes did drop by 4.2 percent in June to 4.2 million, which analysts said was a hopeful sign that the price declines may soon come to an end.
Lawrence Yun, senior economist for the Realtors, said that potential buyers have been getting mixed signals about whether now is a good time to buy a home with mortgage rates rising and banks and other lenders tightening their standards, making it harder to qualify for a loan.
“It appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer,” Yun said.
The Realtors are forecasting that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.
Yun said that if the price decline turns out to be greater than he is forecasting that would raise concerns that consumers could cut back on their spending by enough to raise worries about a possible recession for the overall economy.
The Dow Jones industrial average suffered a 226-point drop on Tuesday as Countrywide Financial, one of the nation’s mortgage lenders, reported a sharp drop in its second quarter profits, raising worries among investors that the housing slump could damage the overall economy by a greater extent than it already has.