Unsold homes in US rise by 5%/Sales of existing homes fall to slowest pace in 5 years

Unsold homes in US rise by 5%
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 27 2007 16:17 | Last updated: August 28 2007 00:36


The supply of unsold homes in the US rose to a 16-year high last month amid a crisis in the credit market, suggesting the worst is yet to come for the domestic housing market.

Inventories of houses for sale by homeowners rose 5 per cent on the previous month to the highest level since October 1991 as purchases fell to the lowest level in nearly five years, according to the National Association of Realtors.

Economists said the increase in supply and slowdown in demand suggested the most severe housing downturn since the early 1990s was set to worsen. Lending conditions had tightened following a crisis of confidence in credit markets after a rise in defaults on high-risk subprime ­mortgages.

The NAR blamed “mortgage liquidity issues” for the slowdown in purchases.

Nigel Gault, an economist at Global Insight, said: “Unfortunately, worse news lies ahead. The July data reflect sales that were agreed in May or June, well before the severe tightening in credit standards occurred in July and August. That will mean more foreclosures reducing demand, adding up to lower home sales and lower prices.”

Sales of existing homes were 9 per cent lower than a year ago as sales fell for the fifth consecutive month.

The median price of an existing home fell 0.6 per cent in July from a year ago to $228,900 (£113,665), the NAR said.

The decline in sales was concentrated in the Midwest, which has been spared the worst of the house price falls so far, with purchases flat or slightly higher in the rest of the country.

US stocks fell on the figures and the yield on the 10-year bond was slightly lower, at 4.61 per cent.

Meanwhile, durable goods orders were much stronger than expected in July, rising 5.9 per cent. Underlying order growth was also significantly stronger than expected.





Sales of existing homes fall to slowest pace in 5 years
Copyright by The Associated Press
9:04 AM CDT, August 27, 2007


Sales of existing homes dropped for a fifth straight month in July, falling to the slowest pace in nearly five years, while home prices fell for a record 12th consecutive month.

The National Association of Realtors reported that sales of existing homes dipped by 0.2 percent last month to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.

The steep slump in housing has trimmed overall growth for the past year and recently the economy has been shaken by spillover effects in financial markets. Rising defaults in subprime mortgages have triggered a serious credit crunch as investors have worried that hedge funds and other big investors in securities backed by subprime loans could suffer serious losses.

The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.

By region of the country, sales fell by 2.2 percent in the Midwest and were unchanged in the South. Sales rose by 1.8 percent in the West and 1 percent in the Northeast.

The increase in the Northeast, which also saw the median home price increase, was seen as possibly hopeful sign that the worst of the housing downturn may be ending.

“The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom,” said Lawrence Yun, senior economist for the Realtors. “Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.”

However, many analysts believe it could be months before housing stabilizes because of the threat that rising delinquencies could dump further homes onto an already glutted market.

The inventory of unsold homes rose by 5.1 percent at the end of July to a record of 4.59 million units.