Housing Market Woes Continue: Existing Home Sales Drop

Sales of existing homes fell in July for a fourth consecutive month, further evidence that housing troubles are far from over.
The National Association of Realtors reported Wednesday that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units. This is the slowest sales pace since November 2002, as the decline was about twice what had been expected.

The median price of an existing home edged up to $230,100, 0.3 percent more than a year ago. This could explain the lack of home purchase loan activity nationwide.

It was the first price gain in 11 months. Analysts, however, said they were looking for prices to fall further because of the high level of unsold homes.

For June, the median price of a single-family home rose by 0.1 percent and the price of a condominium increased by 2.6 percent when compared with a year ago.

“With inventories still way out of line, unless prices fall a lot more, the housing market will not turn around any time soon,” said Joel Naroff, chief economist at Naroff Economic Advisors.

In a separate report Wednesday, the Federal Reserve said the economy expanded in June and early July. But most Fed regions reported further declines in residential construction and real estate activity.

The Fed’s chairman, Ben Bernanke, told Congress last week that he expected housing to be a less severe drag on growth in the coming months. Many private economists are not as optimistic. They note that existing home sales fell at an annual rate of 28 percent from April through June, the steepest 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 slump follows five boom years when sales of new and existing homes set records and home prices soared by double-digit rates. Since late 2005, sales have slumped as mortgage rates rose and prospective buyers balked at selling prices.

Those problems have worsened in recent months because of troubles in the subprime mortgage market, which offered loans to buyers with spotty credit histories. Rising bad credit mortgage defaults are dumping more homes onto an oversupplied market.

Countrywide Financial, one of the largest mortgage lenders, reported a sharp decline in second-quarter profits because of an increasing number of loans going bad. That sent jitters through financial markets and led to a 226-point drop in the Dow Jones industrial average Tuesday. Investors are worried that the problems in subprime lending could drag down the economy.

Sen. Charles Schumer, presiding over a hearing of the Joint Economic Committee, said the default figures were “staggering and getting worse.” The New York Democrat cited a forecast that as many as 2.4 million families may lose their homes because of the subprime crisis and that one in five subprime loans that originated in 2005 and 2006 are expected to go bad.

“These shocking figures are the result of widespread, systemic, irresponsible underwriting practices by too many unscrupulous brokers and lenders,” he said. The committee heard from residents of a Cleveland suburb hit hard by foreclosures.

The declines in existing home sales in June covered all parts of the country. Sales fell by 7.3 percent in the Northeast, 6.8 percent in the West, 2.8 percent in the Midwest and 1.7 percent in the South.