Slump in Housing Sales Continued Last Month

Sales of new homes fell nationwide in May, showing no signs of recovery for the weakest housing market in more than a decade.

The Commerce Department reported yesterday that sales of new, single-family houses fell 1.6 percent last month to a seasonally adjusted annual rate of 915,000. At that pace, it would take 7.1 months to dispose of the supply of unsold homes.

The glut of inventory, combined with higher mortgage rates this month, means a lasting recovery is still far off, some economists said. Complicating matters is the rising foreclosure rate among people with poor credit -- subprime borrowers who have adjustable-rate mortgages with low introductory teaser rates that are starting to increase. Lenders have responded by tightening their credit standards, shutting out many potential buyers.

"Because of the magnitude of the supply we have in both existing and new homes, we're not going to see a quick bounce-back," said Mike Larson, a real estate analyst at Weiss Research in Jupiter, Fla.

In another indication of weakness in the industry, Lennar, a leading home builder based in Miami, reported a second-quarter loss of $244.2 million, compared with a profit of $324.7 million in the comparable quarter a year earlier. The loss came even though the company cut prices and offered buyers other incentives.

Stuart A. Miller, Lennar's president and chief executive, predicted further losses. "As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions," he said in a statement. Lennar shares fell $1.20, to $37.55 a share. Other builders' stocks dropped, too.

The Commerce Department report showed that May's new-home sales were down 15.8 percent from May 2006. The median sales price, the point at which half the homes are sold for more and half for less, was $236,100 in May, down about 0.9 percent from a year earlier. The inventory of unsold homes fell to 536,000 units in May from 542,000 in April, but because the sales pace slowed, the length of time it would take to sell that supply increased.

Analysts said they expect prices to continue to fall through the year and into next year. "I think we have a long, long way to go down," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

In addition to slashing prices and offering incentives, builders have cut production. The government reported last week that housing starts fell 2.1 percent in May. Home-builder confidence, meanwhile, plunged this month to its lowest point since February 1991, according to an index from the National Association of Home Builders and Wells Fargo.

The resale market remains sluggish. The National Association of Realtors reported this week that sales of existing homes dropped in May to the lowest level in almost four years.

Bernard M. Markstein III, senior economist and director of forecasting for the National Association of Home Builders, said the market will rebound in 2008, then start a multi-year recovery. "It looks like the decline is slowing, so we may be approaching a bottom," he said. "We're not quite there."