Drop in Existing Home Sales Is Less Than Expected

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The New York Sun

Sales of previously owned homes in America fell less than expected in August, as prices fell from a year earlier, the National Association of Realtors said yesterday.

Home re-sales fell to a 6.30 million annual rate, a 0.5% decrease from July’s unrevised 6.33 million annual pace.

The median home price was $225,000 in August, compared with a revised $230,000 in July. Last month’s price was 1.7% below a year earlier, making it the first year-to-year median price decline since April 1995 and the second-biggest price drop in the survey’s 38-year history.

NAR Chief Economist David Lereah said an anticipated decline in prices compared with a year earlier has begun and is likely to continue until the end of the year, helping to support sales. “With sales stabilizing, we should go back to positive price growth early next year,” Mr. Lereah said.

The August re-sales level was above Wall Street expectations of a 6.20 million sales rate for previously owned homes.

“I think it’s a bit puzzling that the overall pace (in August) wasn’t weaker, but that may be a good sign,” said Scott Brown, chief economist for Raymond James & Associates.

While the NAR price data are not as thorough as the quarterly reports from the Office of Housing Enterprise Oversight, economists say the August price decline may signal pressure ahead on home-equity withdrawals and consumer spending.

A decline in cash available from mortgage-equity withdrawals and other consumption related to housing could subtract three-quarters of a percentage point from American gross domestic product growth, said Lehman Brothers economist Drew Matus.

Still, last month’s existing home sales were better than expected and this month’s re-sales activity appears to be relatively positive too, suggesting new homebuilding may be bearing the brunt of the housing-market slowdown, Mr. Matus said.

“The faster that new home starts and (building) permits come off, the more this impact on the housing market will be a supply or volume impact rather than a price impact,” he said.

While homeowners who have to sell are likely causing much of the current price softening, home resellers historically have been reluctant to let prices drop, Brown said. And the market is getting some support from the drop in long-term mortgage rates in the past two months, he said.

The average 30-year rate was 6.52% in August, down from 6.76% in July, according to Freddie Mac (FRE).

By the end of last month, the inventory of homes on the market rose to 7.5 months, compared with the unrevised 7.3 months of a month earlier, NAR said. The August inventory ratio was the highest since April 1993.

Existing home sales were mixed regionally. Sales rose 0.7% in the Midwest and 1.9% in the Northeast. They were down 2.3% in the West and 0.8% in the South.

Mr. Lereah said American existing home sales are still on pace in 2006 for their third-highest year on record. “If you put this into historical perspective, then the housing market has experienced a soft landing,” he said.

Compared with new home sales, existing home sales do little for GDP growth, but the economy could take support from other sources in the months ahead, Mr. Brown said. Continued job growth and lower energy prices will help to offset less housing wealth, he said.

The New York Sun

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