US existing-home sales hit 4-year low
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: June 25 2007 15:53 | Last updated: June 25 2007 16:34
Sales of existing homes in the US fell slightly last month to their lowest level in four years according to figures out on Monday, as the housing market showed little sign of improvement.
In a third consecutive monthly decline, 5.99m homes changed hands in May, marginally more than the 5.97m that economists had expected, but 0.3 per cent fewer than in April. It was the lowest rate of sales since June 2003. However, figures for sales in April were revised 0.1m higher to a 6.01m rate, in data from the National Association of Realtors.
The number of homes for sale rose to 4.43m, equivalent to 8.9 months supply. This is the highest level in 15 years, and almost double the supply from two years ago. The rise in inventory helped to drive existing home prices down 2.1 per cent compared with last year, to a median level of $223,700.
“The current level [of inventory] is approximately a million units above normal, a figure that glaringly illustrates the housing market’s biggest problem,” said Tony Crescenzi, bond strategist at Miller Tabak & co.
The large and rising inventories will keep prices low and makes builders hesitant to start construction on new homes, probably prolonging the effects of the housing recession, said Michelle Meyer of Lehman Brothers. It could also lead to rising foreclosure rates for borrowers struggling to pay off mortgages, as high levels of supply make it more difficult to sell homes quickly.
The US housing market has been badly hit by rising defaults and late payments on subprime mortgages, which are home loans to people with weak credit histories.
Taking defence against the leap in defaults, many lenders have tightened their credit requirements from borrowers, driving down the homes purchases. Rising mortgage rates this month have also hit demand for home purchases.
Many economists expect sales to move to even lower levels, reflecting the double chilling effects of tighter lending standards and higher mortgate rates.
“The headline sales number is not quite as bad as we expected ... but the downward trend is still intact and further declines should be expected over the next few months,” said Ian Shepherdson of High Frequency Economics.
But some US economists saw the small drop in sales as mildly encouraging following two sharp declines in the last two months.
“We’re still looking at the market hitting bottom sometime later this year,” said Adam York an economics analyst at Wachovia. “Its not improving yet but its not much worse.”
The price of the benchmark 10 year Treasury note and the major stock indices rose following the report, as the markets began to price in a higher chance of rate cuts by the end of the year. The 10-year Treasury saw yields fall to 5.09 per cent, versus 5.14 per cent late on Friday. The S&P 500 was up 6.03 points, or 0.40 per cent, at 1,508.59.
Sales of existing homes make up about 85 percent of the housing market. The rest of the market is made up by newly built housing.
Monthly figures on sales of already owned home are a measure of closings of contracts and so can reflect sales which were agreed weeks or months before. New-home sales are recorded when a contract is signed, and so can be a better indicator of recent conditions. A report on sales of new homes for May is out on Tuesday.