Existing home sales jump to two-year high

Aug. 21, 2009 07:22 AMBloomberg News

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 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. Ongoing job losses are a reminder that more Americans will probably lose their homes, indicating a rebound will be slow to take hold.

The housing market remains on the road to recovery due to good affordability, Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. Even so, it's probably relegated to the slow lane until joblessness and credit standards ease.

Stocks jumped and Treasury securities dropped after the report added to evidence the housing market was turning. The Standard & Poor's 500 index rose 1.5 percent to 1,022.67 at 10:06 a.m. in New York. The yield on the 10-year note jumped to 3.50 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. Junes 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.

The number of previously-owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a notable increase, according to Lawrence Yun, the Realtors chief economist. 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 to 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.
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.

Better Performance
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.