The start of something big? Nah. . .

U.S. Economy: Home Resales Rise on Lower Prices, Mortgage Rates
By Bob Willis

May 27 (Bloomberg) -- Home resales in the U.S. rose for the second time in three months in April as foreclosure auctions and cheaper prices spurred bargain hunters, buttressing the case for an end to the industry’s slump this year.

Purchases increased 2.9 percent to an annual rate of 4.68 million, in line with forecasts, from 4.55 million in March, National Association of Realtors figures showed in Washington. The median price slumped 15 percent from a year earlier, the second-biggest drop on record. A separate report indicated that the slump in home values eased in the first quarter.

“You will see more gains in home sales and some fading of weakness in coming months,” spurred by lower mortgage rates and cheaper sales prices, James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.

A pick-up in sales will help trim the glut of unsold homes and eventually stem the slump in property values. That will be critical to shoring up household finances and spurring a recovery in residential construction, helping the economy emerge from its deepest recession in half a century.

The Standard & Poor’s 500 Supercomposite Homebuilding Index gained 3 percent to 228.75 as of 12:08 p.m. in New York, a contrast with the broader S&P 500 Stock Index, which was up just 0.3 percent. Treasuries were little changed, with benchmark 10- year notes yielding 3.56 percent.

Decline Moderating

The average price of a U.S. home fell 7.1 percent in the first quarter, slower than the fourth quarter’s 8.3 percent drop that was the largest on record, the Federal Housing Finance Agency said in Washington.

“Our latest data are consistent with growing evidence that housing market conditions may be stabilizing in some parts of the country,” FHFA Director James B. Lockhart said in a statement.

Distressed properties accounted for 45 percent of all existing-home sales, today’s NAR report showed. Economists forecast resales would rise 2 percent to a 4.66 million annual rate from a previously reported 4.57 million pace in March, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from rates of 4.47 million to 4.8 million.

Sales were down 3.5 percent compared with a year earlier.

Recent increases in mortgage rates have hurt owners looking to lower monthly payments. Mortgage applications declined 14 percent last week, led by a plunge in refinancing, a report today from the Mortgage Bankers Association also showed. Still, the group’s purchase measure rose 1 percent, indicating rates are still low enough to spur sales.

Properties for Sale

The number of houses on the market climbed 8.8 percent to 3.97 million in April, reflecting the gains usually associated with this time of year, NAR said. At the current sales pace, it would take 10.2 months to sell those homes, up from 9.6 months in March.

Resales of single-family homes increased 2.5 percent to an annual rate of 4.18 million. Sales of condos and co-ops rose 6.4 percent to a 500,000 rate.

The gain last month was led by a 12 percent jump in the Northeast and a 3.5 percent gain in the West. Purchases also climbed in the South and fell in the Midwest.

Foreclosure filings in the U.S. rose to a record in April for the second consecutive month, Realtytrac Inc., a seller of foreclosure data, said May 13, as the jobless rate climbed to its highest in more than a quarter century. Foreclosure filings jumped 32 percent from a year earlier, the group said.

Distressed Sales

The share of distressed sales last month was down from March, reflecting normal volatility, NAR said. First-time buyers accounted for about 40 percent of April sales, also down from March, the group said.

Still, “it’s a non-regular market in terms of so much distressed sales activity,” Lawrence Yun, chief economist of the agents group, said in a press briefing. The market is led by gains in sales of lower-priced properties, while there is “very little” activity at higher price points, Yun said.

Multiple bids are now common on foreclosure sales, while properties selling for $750,000 or more are taking 40 months to sell on a median basis, Yun said. Higher mortgage rates for jumbo loans are one reason for the disparity, he said.

The Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.

Lower mortgage costs are also helping to make buying more affordable. Rates on 30-year fixed loans fell to 4.78 percent in April, the lowest level since Freddie Mac began keeping records in 1972. Federal Reserve purchases of mortgage securities have contributed to bringing down rates, economists said.

Fed View

“The housing market is beginning to stabilize,” Fed Chairman Ben S. Bernanke said in congressional testimony on May 5. “We continue to expect economic activity to bottom out, then to turn up later this year.”

Some housing-related businesses are reporting an improved outlook. Lowe’s Cos., the second-largest U.S. home-improvement retailer, posted first-quarter earnings that fell less than analysts estimated.

“There have been some encouraging signs in recent weeks that suggest perhaps the worst is behind us,” Lowe’s Chief Executive Officer Robert Niblock said on a conference call May 18. “Consumer confidence has ticked up. Housing turnover, especially in certain markets, is showing signs of a bottom.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: May 27, 2009 12:09 EDT