Sales of existing homes fall
July 26, 2006
WASHINGTON ” Sales of existing homes fell in June for the eighth time in the past 10 months while home prices edged up at the slowest pace in more than a decade ” more signs that the housing market has slowed dramatically.
The National Association of Realtors reported Tuesday that sales of previously owned homes and condominiums dropped 1.3 percent in June to a seasonally adjusted annual rate of 6.62 million units.
The median price of a home sold last month was $231,000. That was up 0.9 percent from June 2005 and represented the smallest year-over-year price gain since May 1995. It was also far below the 16.8 percent jump in prices recorded for the 12 months ending last October, which had been a 26-year high for year-over-year price gains.
The 1.3 percent decline in sales was in line with expectations. It represented the third drop in a row and the eighth decline in the past 10 months as the nation’s once-booming housing market has shifted to a slower pace in the face of rising mortgage rates.
By region of the country, sales fell 3.5 percent in the Northeast and 2.3 percent in the South last month. Sales were unchanged in the West and the Midwest.
The inventory of unsold homes rose to a new record of 3.725 million units, which is a 6.8 months supply at the June sales pace. That is the longest period required to exhaust the overhang of unsold homes in nearly nine years.
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Analysts said the growing level of unsold homes will further depress prices in coming months and add to the slowdown in sales.
“With interest rates still rising and job growth slowing, the slowdown in sales will continue,” predicted Patrick Newport, an economist at Global Insight, an economic consulting firm. He forecast that existing home sales would decline by 8 percent this year and 9 percent in 2007.
For June, sales of single-family homes fell 0.9 percent to a seasonally adjusted annual rate of 5.81 million units while sales of condominiums dropped 5.5 percent to an annual rate of 805,000 units.
David Lereah, chief economist for the Realtors, said he believed that the decline in housing sales was beginning to level out.
Sales of both new and existing homes set records for five consecutive years, but rising mortgage rates that have risen to the highest levels in four years have dampened the sales boom this year. Freddie Mac reported that 30-year mortgages hit 6.80 percent last week, the highest rate since late May 2002.
The big worry is that sales will fall so sharply that it could send shock waves through the entire economy, much as the bursting of the stock market bubble in 2000 contributed to the 2001 recession.
Economists expect the decline in the economy to contribute to a slowdown in growth but not result in an outright recession.
Lereah said he believed price weakness will continue as sellers start cutting their asking prices in the face of weaker demand and rising inventories.
He said that housing continued to be a “tale of two markets” with previously hot areas experiencing declines and more modestly priced areas showing a boom.
Lereah said that while New York City, Boston, Chicago and Minneapolis had seen sales declines, cities such as Syracuse and Pittsburgh were experiencing rising sales.
By state, Maryland and Virginia were experiencing weakness while Texas, Georgia, North Carolina and Tennessee were enjoying sales increases, Lereah said.