Existing Home Sales in U.S. Jump to Two-Year High

Existing Home Sales in U.S. Jump to Two-Year High
By Shobhana Chandra

Aug. 21 (Bloomberg) -- Sales of existing U.S. homes jumped more than forecast in July to the highest level in almost two years, signaling the housing crisis that crippled the world’s largest economy is easing.

Purchases climbed 7.2 percent to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said today in Washington. The gain was the biggest since records began in 1999. The median price fell 15 percent.

Foreclosure-driven declines in prices, government credits for first-time buyers and near-record-low borrowing costs may keep stoking demand, helping the economy recover from the worst recession since the 1930s. At the same time, more Americans will probably lose their homes as companies cut payrolls, indicating a rebound will be slow to take hold.

“More and more buyers are becoming convinced that there is not a lot of downside left in the housing market,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We can count on housing no longer being a drag. The economic recovery is on track.”

Stocks jumped and Treasury securities dropped after the report added to evidence the housing market was turning. The Standard & Poor’s 500 index rose 1.6 percent to 1,023.26 at 11:26 a.m. in New York. The S&P builder supercomposite was up 4.4 percent. The yield on the 10-year note jumped to 3.53 percent from 3.43 percent late yesterday.

Exceeds Forecast

Existing home sales were forecast to rise to a 5 million annual rate, according to the median forecast of 64 economists in a Bloomberg News survey. Estimates ranged from 4.8 million to 5.25 million. June’s pace was unrevised at 4.89 million.

Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Purchases of existing homes increased 5 percent compared with a year earlier. The median price dropped to $178,400 from the $210,100 in July 2008.

“We are bouncing back,” Lawrence Yun, the NAR’s chief economist, said in a press conference. Even so, “we still need to wait until year-end before we see price stabilization.”

The number of previously owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a “notable” increase that exceeded the historical average for the month, according Yun. Sellers who were waiting for the market to turn may now be putting their houses up for sale, he said.

At the current sales pace, it would take 9.4 months to sell those houses, the same as in June. A seven months’ supply is usually consistent with stabilization in prices, Yun said last month.

Distressed Sales

The share of homes sold as foreclosures or otherwise distressed properties held at 31 percent in July, he said.

Today’s report showed sales of existing single-family homes increased 6.5 percent to an annual rate of 4.61 million. Sales of condominiums and co-operatives climbed 13 percent to a 630,000 rate.

Purchases increased in three of four regions, led by a 13 percent jump in the Northeast.

The figures are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new-home sales, recorded when a contract is signed, a more timely barometer of the market.

The Commerce Department may report next week that purchases of new houses rose in July to the highest level since November, according to the Bloomberg survey.

Cutting Costs

Home Depot Inc., the largest home-improvement retailer, is among businesses cutting costs to ride out the housing recession. The Atlanta-based company reported second-quarter profit that fell less than analysts estimated and raised its annual earnings forecast after trimming expenses, even as it projected a sales decline for the year.

“Performance across most of our regions is better,” Chief Executive Officer Frank Blake said on a conference call with analysts on Aug. 18. “But caution is still appropriate,” and “we remain concerned by the high level of foreclosure activity,” he said.

About $3.4 trillion worth of houses are at risk of default because the owners owe more than the property is worth, Santa Ana, California-based First American CoreLogic said last week. By putting more homes on the market, foreclosures are keeping inventory higher than levels consistent with stable prices.

Obama administration efforts to revive housing include an $8,000 federal tax credit for first-time buyers who complete the transaction before Dec. 1. The government also is offering lenders incentives to modify the terms of delinquent mortgages, and the Federal Reserve is buying mortgage-backed securities to help reduce borrowing costs.

The first-time buyers accounted for about 30 percent of sales last month and the government’s credit is having a “significant impact,” the NAR’s Yun said.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: August 21, 2009 11:35 EDT

I'm not buying into the headlines. Sales are up, but prices continue to fall, unemployment continues to rise, and foreclosure rates continue to set records.
I think we're seeing some bottom feeding from speculators as the banks are desperate to liquidate their bloated inventories. Combined with the Fed's first time home buyer's credit program, and we're seeing an increase in activity. But there's nothing here to indicate this is but a short term bounce in an otherwise dismal economic environment.

I agree MC. I heard a report that the 5 year ARM teaser loans are to adjust in 2010, and at present it may seem calm, but we are really only in the eye of the storm.

Don't forget the moratorium on foreclosures is about to expire. That should put a nice inventory of homes on the market to further drive prices down.

Who would believe these economic "experts" anymore? As the columnist Dean Baker wrote recently, "The folks who missed the largest financial bubble in the history of the world are confident that the recession is over." And it will be the same "experts" on all the talk shows and cable news outlets providing their analysis and predictions for the future. Must be nice to be completely wrong yet maintain credibility.