Existing Home Sales Edged Up in May
Median Prices Continue to Drop; Analysts Say No Turnaround Expected Anytime Soon

By Martin Crutsinger
Associated Press
Friday, June 27, 2008

Sales of existing homes rose slightly in May, only the second increase in the past 10 months. Prices, however, kept plunging, and analysts said the large number of unsold homes indicated that the prolonged slump in housing was far from over.

The National Association of Realtors reported yesterday that sales of existing single-family houses and condominiums increased 2 percent, to a seasonally adjusted annual rate of 4.99 million units in May. Even with the gain, it was still 15.9 percent below the depressed level of a year earlier.

The median price of an existing home dropped to $208,600 in May, 6.3 percent lower than a year earlier. The median is the point where half sell for more and half sell for less.

Existing-home sales account for the bulk of the housing market. The report followed Wednesday's news that sales of new, single-family homes fell 2.5 percent in May. That was the sixth drop in seven months, and it pushed the annual sales pace down to 512,000 units.

The two-year slump in housing has dragged down the economy, and rising levels of foreclosures are dumping even more unsold homes on the market.

Given the weak economy, many analysts said they were not looking for a turnaround in housing for many more months. "Plunging prices and massive inventory are huge disincentives to home buying," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Economists said falling consumer confidence, rising layoffs and higher mortgage rates were in the way of a housing rebound. Freddie Mac reported yesterday that mortgage rates rose across the board in the past week. The 30-year mortgage climbed to 6.45 percent, the highest since September.

"We do not expect residential real estate markets to turn around soon," said Stuart Hoffman, chief economist at PNC Financial Services. "In a sea of weak data, home sales will remain an anchor, not a lifeboat."

Economists with the Realtors association noted that for the past few months, sales have rebounded in areas hit hardest by the housing bust, including parts of California. "Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets," said Lawrence Yun, the association's chief economist.

However, he said, foreclosures and short sales -- when a home is sold for less than the value of the mortgage -- are a large portion of the current market, particularly in California, and are depressing home prices.

The national inventory of unsold homes dropped 1.4 percent to 4.49 million units in May. That is a 10.8-month supply at the May sales pace, down from 11.2 months in April. Both exceed the seven-month inventory that is typical.