Home Sales on a ‘Staircase to the Basement’

26 07 2007

Sales of existing homes fell in June for the fourth straight month as problems in the mortgage industry continued to hurt the housing market.

The National Association of Realtors reported yesterday that sales of previously owned homes dropped 3.8 percent from May to a seasonally adjusted rate of 5.75 million units, the slowest pace in more than four years. It was also 11.4 percent less than the number of units sold in June 2006.

“We’re still on a descending staircase to the basement of the housing market, and I say we have many more steps to go until we get there, maybe by this time next year,” said Stuart Hoffman, chief economist for PNC Financial Services Group in Pittsburgh.

Lawrence Yun, senior economist for the Realtors association, attributed the drop to a June increase in mortgage rates and the breakdown of the subprime mortgage industry, which catered to people with blemished credit.

On Tuesday, Countrywide Financial, one of the nation’s largest mortgage lenders, reported a substantial second-quarter drop in profit, saying that problems have also begun to increase among borrowers with good credit.

Rising foreclosures and delinquencies have led to tighter lending standards. “Those potential home buyers are pushed out of the market,” Yun said. “That’s not necessarily a bad thing. We are returning towards more traditional mortgage products, healthier, less riskier products.”

The median home price, meanwhile, rose 0.3 percent from June 2006, to $230,100 last month, the first year-over-year increase in 11 months, the Realtors group said. “I would not interpret too much into a single month of data,” Yun said.

Yun said his group is forecasting that prices for the year will drop by 1.4 percent, which would be the first annual price decline since the group began tracking data. Still, he predicted that sales would pick up by the fourth quarter and that prices would stabilize in 2008.

Other analysts, however, said the recovery could take longer because inventory remains high.

Although the supply of unsold homes dropped 4.2 percent in June, to 4.2 million existing homes, it would still take 8.8 months to deplete the inventory, the Realtors reported. That amount of time was unchanged from May. Analysts said inventory fell partly because frustrated sellers pulled their homes off the market.

Patrick Newport, an economist at Global Insight, a forecasting firm in Lexington, Mass., predicted that prices will slide through the end of this year and into 2008 and won’t go up until 2009. “The housing market is still in a recession,” he said, “and there’s no turnaround anywhere in the horizon.”

Compounding the problem, Newport and Hoffman said, is that homeowners who took out adjustable-rate mortgages with low introductory rates will soon experience payment shock when their rates reset. The predicted increase in foreclosures will add to an already bloated inventory of homes, they said.

Sales dropped in every region of the country — 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, which includes Washington and its suburbs.

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