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U.S. existing home sales fall more than forecast

Sales of previously owned U.S. homes fell more than forecast in September, signaling no letup in the real-estate slump that threatens to hobble economic growth.

Purchases declined 8 percent to an annual rate of 5.04 million, the fewest since record keeping began in 1999, from a 5.48 million August pace, the National Association of Realtors said in Washington. Sales were down 19 percent from September 2006 and the median home price dropped.

The collapse in subprime lending will limit access to credit and reduce sales even more in coming months, economists said. The drop in demand suggests home prices will keep falling, raising the risk consumer spending, which accounts for more than two-thirds of the economy, will slow.

"Housing still has a lot of weakness ahead of it," Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said before the report. "Existing home sales are still not particularly low by historic standards."

Resales were forecast to fall 4.5 percent to an annual rate of 5.25 million from a previously reported 5.5 million pace in August, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from 4.95 million to 5.8 million.

The median price fell 4.2 percent to $211,700, compared with September 2006.

Stricter lending standards and higher borrowing costs are making it more difficult to qualify for loans, causing an increase in the number of unsold properties and pulling prices down. Some economists say falling home values, by making owners feel less wealthy, may reduce consumer spending.

Prices Drop

Home prices in 20 U.S. metropolitan areas fell 3.9 percent in July from a year earlier, the biggest such decline since record-keeping began in 2001, according to the S&P/Case-Shiller home-price index.

The number of homes for sale at the end of the month rose to 4.4 million. At the current sales pace, that represented 10.5 months' supply, the highest since record keeping began in 1999 and up from 9.6 months in August.

The inventory of single-family homes represented a 10.2 months' supply, the most since February 1988.

Resales of single-family homes fell 8.6 percent to an annual rate of 4.38 million, the fewest since January 1998. Sales of condos and co-ops dropped 4.3 percent to a 660,000 rate.

Purchases declined in all four regions, led by a 10 percent decrease in the Northeast.

Mortgage Volumes

The volume of mortgages issued this year will fall to the lowest since 2000, the Mortgage Bankers Association forecast on Oct. 17. Foreclosures doubled in September from a year earlier as subprime borrowers struggled to make payments on adjustable- rate mortgages, RealtyTrac Inc. said Oct. 11.

"We have a ways to go in the housing recession," Douglas Duncan, the Mortgage Bankers Association's chief economist, said last week.

Today's report corroborates earlier figures this month from the Realtors' association that the housing slump is worsening.

Pending sales plunged 6.5 percent in August to the lowest level on record following an 11 percent plunge in July. The measure tracks contract signings, while the figures on sales of existing homes are based on closings, which usually occur a month or two later.

The real-estate agents' group this month reduced its sales forecast for the 10th time this year.

'Significant Drag'

Federal Reserve Chairman Ben S. Bernanke last week said the drop in residential construction will be a "significant drag" on growth into 2008, though evidence of a broader impact on spending is limited. He reiterated that policy makers will "act as needed" to secure growth and contain prices.

Fed funds futures trading shows the majority of investors are betting the Federal Open Market Committee will reduce the benchmark rate by a quarter percentage point on Oct. 31.

Economists have lowered their outlook for economic growth this year since the August turmoil in credit markets. The economy will grow 2 percent, the least since 2002, according to the median forecast in a Bloomberg survey taken earlier this month. Economists had projected a 2.5 percent rate of expansion at the start of the year.

Declining home construction has detracted from growth for the six quarters ended in June.

D.R. Horton Inc., the second-largest U.S. homebuilder, said Oct. 16 that orders in the fiscal fourth quarter plunged to the lowest in almost six years as customers backed out of purchases and banks restricted lending.

Chairman Donald Horton said in a statement that prospective buyers had more difficulty obtaining mortgages, hurting demand.

"Buyers continued to approach the home-buying decision cautiously," Horton said. "We expect the housing environment to remain challenging."