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Home resales slowed in july Original Source Link: (May no longer be active)
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U.S. Economy: Home Resales Slow to 7.16 Million Rate (Update2)
Aug. 23 (Bloomberg) -- U.S. sales of previously owned homes slowed in July and the number of houses for sale rose to a 17-year high, suggesting the real estate market is beginning to cool.
Existing home sales fell 2.6 percent to a 7.16 million annual pace last month from the record 7.35 million rate in June, the National Association of Realtors said today in Washington. The median price rose to an all-time high and the supply of homes for sale rose to 2.75 million, the most since May 1988.
Purchases last month were still the third-highest ever, supported by low mortgage rates and job growth. The increase in homes for sale will limit price appreciation and let the market slow to a more sustainable pace, assuaging fears of a collapse that would threaten the economy, economists said.
``With long-term interest rates still very low, we do not believe housing is about to weaken sharply,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. The rise in inventories suggests that sales ``have peaked, however, and the rate of increase in prices will probably start to slow soon.''
The median price rose 0.5 percent to $218,000 in July, today's report showed. The rise compares with an average monthly increase of 2.1 percent from January through June.
The median price was up 14 percent from July 2004, the biggest year-over-year rise since April's 14.5 percent gain that was the most since 1980. Some economists have said such increases suggest a housing bubble in which prices are bid up until they reach unsustainable levels relative to incomes.
`Froth'
Federal Reserve Chairman Alan Greenspan has said this year that home-price increases in some local real-estate markets are ``unsustainable'' and there are signs of ``froth.''
``The significant rise in purchases of homes for investment since 2001 seems to have charged some regional markets with speculative fervor,'' Greenspan said in testimony before Congress last month.
Economists surveyed by Bloomberg News forecast home resales would fall to a 7.25 million pace following June's previously reported 7.33 million rate. Estimates ranged from 7 million to 7.5 million. The report includes sales on condominiums and co- operative apartments as well as single-family homes.
The decline in sales pushed down homebuilder shares. This month, the Standard & Poor's Supercomposite Homebuilding Index, made up of shares of 15 U.S. builders, has fallen almost 14 percent. Shares of D.R. Horton, the largest U.S. homebuilder, have dropped 20 percent since reaching high in July.
Mortgage Rates
The yield on the 4 1/4 percent Treasury note maturing in August 2015 fell 3 basis points, or 0.03 percentage point, to 4.18 percent at 3:22 p.m. in New York, according to bond brokers Cantor Fitzgerald LP.
Mortgage rates have declined since the Fed officials embarked on their string of 10 quarter-point increases beginning in June of last year.
The rate on a 30-year fixed mortgage averaged 5.69 percent in July, according to figures from Freddie Mac, the second-largest mortgage company. That compares with 6.25 percent before the first increase in the overnight rate on June 30, 2004.
``It's still a fairly strong market,'' said Tom Kunz, chief executive of Century 21 Real Estate Co., in an interview. ``As long as jobs continue to be plentiful, which they are, and interest rates are reasonable, we are going to continue to see a very strong market.''
Resales, which account for about 85 percent of the residential real estate market, are tabulated at contract closings so they reflect buying decisions made a month or two earlier. Purchases of new homes are counted when a contract is first signed, making them a better gauge of current activity, economist said.
Inventory
The government's report on new home sales is due tomorrow from the Commerce Department. Purchases are expected to fall to a 1.328 million annual pace, second only to the 1.374 million pace reached in June, according to a separate survey of economists by Bloomberg News.
``The economy is good, jobs are being created, interest rates are still at historic lows, demographics are overwhelming, which should drive demand,'' said James Gillespie, chief executive officer at Coldwell Banker Real Estate, in an interview.
The increase in inventory and the slowdown in sales caused the supply of homes to increase. The inventory of homes available for sale increased to 4.6 months' worth in July, the highest since November 2003, from 4.4 months' worth the previous month.
Regions
``We are starting to see more houses coming into the market,'' and that is a sign of a turn, said Kevin Harris, chief economist at Informa Global Markets in New York. ``First you see inventories rising, then you see a flattening of prices and then you start to see people have difficulty selling houses because buyers have more options and they get more demanding.''
Sales of single-family homes declined 2.3 percent to a 6.24 million annual pace in July. Sales of condos and co-ops dropped 5 percent to a 915,000 annual pace.
Total sales were lower in three of four regions. They fell 7.5 percent in the West to a 1.61 million-unit pace, 3.3 percent in the Northeast to a rate of 1.19 million units, and 1.8 percent in the Midwest to 1.61 million units. Resales held at a 2.74 million-unit rate in the South.
Fannie Mae, the largest mortgage company, last week said sales of existing single-family houses will top 7 million for the first time ever in 2005 while prices rise by 11 percent, the biggest gain since 1980. Sales will reach 7.03 million this year, surpassing last year's record of 6.78 million, according to the forecast.
Less Affordable
The jump in prices is starting to pinch. Homes are less affordable now than at any point in the last 14 years, a report from the National Association of Realtors earlier this month showed. Still, the average household had 121 percent of the income needed to purchase a property at the median home price of $208,500, the report showed.
The rise in prices suggests the housing market is ``close to a peak'' and home prices will rise in 2006 at about half the rate of this year, according to a report earlier this month from the Realtors' group.
``There seems to be some air coming out of these balloons,'' said David Lereah, chief economist at the Realtors.
Last Updated: August 23, 2005 15:23 EDT
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