Monday, June 25, 2007

U.S. Economy: Existing Home Sales Approach Lowest in Four Years

By Shobhana Chandra

June 25 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in May to the lowest level in almost four years, reinforcing concerns about a protracted housing slump.

Purchases declined 0.3 percent to an annual rate of 5.99 million, from a revised 6.01 million the prior month, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to a record.

The housing recession, the worst since 1991, is the biggest threat to an economy that's otherwise showing signs of recovering from a yearlong slowdown. A growing number of homes on the market and higher interest rates may further discourage buyers, economists say.

``The slow bleed in housing continues,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The inventory adjustment is going to be slow and painful. This means we're in for more pressure on prices and more pressure on construction.''

Treasury notes remained higher after the report, with the yield on the benchmark 10-year note retreating about 4 basis points to 5.09 percent at 10:51 a.m. in New York. The dollar was little changed, while stocks advanced.

Resales were forecast to fall 0.3 percent to a 5.97 million annual rate from a previously reported 5.99 million in April, according to the median forecast of 61 economists in a Bloomberg News survey.

``We're expecting a continued drag on the economy from housing throughout this year,'' said Jonathan Basile, an economist at Credit Suisse Holdings in New York.

Closing

Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new-home sales are recorded when a contract is signed. Sales of existing homes account for about 85 percent of the U.S. housing market, and new-home sales make up the rest.

New-home sales will be released tomorrow and may show a decline for May after jumping in April by the most in 14 years, according to the median forecast in a Bloomberg survey.

Rising defaults among subprime mortgage borrowers, people with poor or scant credit histories, are hampering a recovery in housing. At the same time, mortgage rates near an 11-month high make borrowing more expensive, even for those with good credit.

The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, the Mortgage Bankers Association said this month. Subprime loans going into default rose to a five-year high, and prime loans entering foreclosure also surged to a record.

Unsold Homes

The supply of homes for sale increased 5 percent to 4.43 million, the most ever. At the current sales pace, that represented 8.9 months' worth, the highest since June 1992 and up from 8.4 months' worth at the end of the prior month.

The median price of an existing home fell 2.1 percent last month from a year ago to $223,700, the 10th consecutive month of year-over-year declines, the Realtors group said.

Resales of single-family homes fell 0.8 percent to an annual rate of 5.2 million. Sales of condos and co-ops rose 2.6 percent to a 790,000 rate.

Purchases fell 3.4 percent in the South and 0.8 percent in the West. They rose 5.8 percent in the Northeast and 0.7 percent in the Midwest.

The housing slowdown ``now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Fed Chairman Ben S. Bernanke said at a conference in Cape Town, South Africa, this month.

Bernanke's Outlook

Still, Bernanke projects a ``moderate'' pace of growth for the economy given the housing recession isn't spilling over much into other parts of the economy.

``The housing market is likely to find a bottom some time this year and no longer be a drag on top-line growth,'' Fed Bank of Richmond President Jeffrey Lacker said in a speech in Frederick, Maryland, on June 6.

Builders continue to struggle. Rising interest rates and surging delinquencies pushed down confidence among homebuilders this month to the lowest since February 1991, the National Association of Home Builders/Wells Fargo index showed last week.

Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said the spring home-selling season was marred by rising cancellations in April and slow sales that continued into May.

``The nationwide housing market is quite sluggish,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc. in Red Bank, New Jersey, said in an interview June 18. ``It's likely to stay a challenging environment for a little while.''

Builders broke ground on fewer new houses in May, while an increase in building permits pointed to a better outlook for future construction, the Commerce Department reported June 19.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

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