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U.S. Economy: Slide in Home Prices Spurs Increase in Resales

U.S. Economy: Slide in Home Prices Spurs Increase in Resales

 

By Courtney Schlisserman

June 23 (Bloomberg) — Sales prices of existing homes dropped 17 percent in May from a year before, spurring a second straight gain in purchases and helping reduce the nation’s glut of unsold properties.

Purchases rose 2.4 percent to an annual rate of 4.77 million, lower than forecast, the National Association of Realtors said in Washington. The median price drop was the third-deepest on record. Separate figures showed home values nationally fell 0.1 percent in April from a month earlier.

Tax breaks for first-time buyers in the Obama administration’s stimulus plan and lower mortgage rates have also helped support an industry now in its fourth year of decline. At the same time, any recovery is likely to be limited with unemployment rising and borrowing costs shooting back up.

“Improved affordability because of low prices and lower interest rates stirred some sales,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “As long as rates don’t rise substantially further from here, we could still stabilize in the housing market.”

Stocks headed for a second day of declines and Treasuries rose amid concern among some investors about the economic outlook. The Standard & Poor’s 500 Stock Index dropped 0.4 percent to 889.08 at 11:13 a.m. in New York. Builders Pulte Homes Inc., Centex Corp. and Toll Brothers Inc. were all down more than 1 percent. Benchmark 10-year yields dropped to 3.63 percent from 3.68 percent late yesterday.

Deepest Slide

Record foreclosures have contributed to the nation’s deepest drop in property values since the Great Depression. The Federal Housing Finance Agency said today that home prices fell 6.8 percent in April from a year earlier.

Economists had forecast existing home sales would rise to a 4.82 million rate, according to the median of 74 projections in a Bloomberg News survey. April’s reading was revised down to a 4.66 million pace from 4.68 million.

May’s sales pace was the strongest since October and last month’s gain marked the first back-to-back increase since 2005.

May traditionally is one of the top three sales months of the year as the weather turns warmer and families prepare to move before the start of the next school year, according to the NAR. The group adjusts the figures for these seasonal variations in order to facilitate month-to-month comparisons.

Sales were 3.6 percent lower compared with a year earlier.

The share of homes sold as foreclosures or otherwise distressed properties was about 33 percent last month, down from the 40 percent to 50 percent seen earlier in the year, NAR said. First-time buyers accounted for about 29 percent of May sales, also less than in recent month.

Distressed Sales

Distressed sales and first-time buyers made up a smaller portion of the market last month as more families stepped in during this time of year, NAR’s chief economist Lawrence Yun, said during a press conference.

One new obstacle to sales is “unrealistically low’ appraisals, Yun also said. Agents have “bombarded’ the group with complaints that the lower quotes are delaying, and in some cases scuttling, closings at the last minute, he said.

The number of houses on the market dropped 3.5 percent to 3.8 million in May, NAR said. At the current sales pace, it would take 9.6 months to sell those homes, compared with 10.1 months in April.

$173,000 Median

The median price of an existing home fell to $173,000 in May from $207,900 a year earlier, the NAR said. The price has fallen as sales slumped and financial institutions auctioned off foreclosed properties.

While the loss has devastated some family, others were able to buy a house for the first time because of the drop in values. The federal government is trying to stabilize the market by offering lenders incentives to modify the terms of delinquent mortgages and the Federal Reserve has pledged to buy mortgage- backed securities to free up funding for home loans.

Foreclosure filings in the U.S. surpassed 300,000 for a third straight month in May and may reach a record 1.8 million by the first half of the year, RealtyTrac Inc. said June 11.

The jump in foreclosures is one of the reasons more first- time buyers have entered the market.

The Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.

Harvard Study

Still, soaring unemployment and high levels of debt will put home ownership beyond the reach of would-be buyers even as home prices fall, according to a report yesterday by Harvard University’s Joint Center for Housing Studies.

Mortgage borrowing costs are also starting to climb. The rate on a 30-year fixed loan has averaged 5.42 percent so far this month, up from 4.86 percent in May, according to figures from Freddie Mac. The rate reached 4.78 percent in April, the lowest level since records began in 1972.

The Standard & Poor’s homebuilder supercomposite index has retreated 23 percent since reaching a seven-month high on May 4 as concern mounted that the backup in interest rates will choke off any recovery before it develops.

The Fed is buying as much as $1.75 trillion of housing debt and Treasuries this year in a bid to lower borrowing costs. Total assets on the balance sheet have expanded by $1.18 trillion over the past year to $2 trillion.

The central bank is scheduled to hold its policy meeting today and tomorrow. It has held the benchmark interest rate near zero since December.

Construction Gain

Recent increases in home construction are a sign the market is starting to stabilize, helped by government programs such as tax credits for first-time homebuyers, Shaun Donovan, secretary of Housing and Urban Development, said June 18.

Housing starts increased 17 percent in May, the Commerce Department said last week.

While Toll Brothers and Hovnanian Enterprises Inc. reported second-quarter losses that exceeded analysts’ forecasts, they both noted there were signs of stability in the housing market.

“Although we lowered our sales prices further, which resulted in the land impairments we took during the second quarter, we have seen more stability in home prices over the most recent six weeks,” Chief Executive Officer Ara Hovnanian, said in a statement June 2.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: June 23, 2009 11:24 EDT

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