Existing-Home Sales Up in May, but Prices Still Falling

The housing market remained weak last month, with bargain hunters fueling a small increase in sales and prices taking another tumble, according to industry data released yesterday.

Sales of existing homes rose 2.4 percent from April to May to a seasonally-adjusted annual rate of 4.77 million units, according to the National Association of Realtors. That was a slightly smaller increase than analysts had expected but the first back-to-back monthly gain since September 2005. Sales were down 3.6 percent compared with last May.

Despite the modest rise in sales, foreclosures continued to drag down prices. About a third of homes sold last month were distressed properties. Meanwhile, the median home price fell to $173,000 in May, down 16.8 percent from a year earlier.

"We knew it was not going to be a strong rebound," said Lawrence Yun, the association's chief economist. "Still, it's good news. It's moving in the right direction."

Some sales are falling through because home appraisals are coming in below the agreed-upon selling price, prompting buyers to reopen negotiations, Yun said. Buyers otherwise would have to come up with the difference between the appraised and selling prices to satisfy their mortgage lenders.

The fall in prices has been fueling sales in the hardest-hit parts of the country, including California and Nevada. Prices were down 30 percent in the West last month, compared with a year ago, and sales were up 11.8 percent.

In the South, which includes the Washington region, sales were down 8.9 percent compared with last year. Prices fell 9.9 percent. In the Northeast and Midwest, sales fell 10.1 percent and 4.4 percent, respectively. Prices fell 12.5 percent in the Northeast and 10.4 percent in the Midwest.

A bright spot in the report was a 3.5 percent month-to-month drop in the inventory of homes for sale, to 3.8 million. At the current sales rate, it would take 9.6 months to sell all the homes on the market, down from a 10.1-month supply in April.

Despite the improvement in inventory, analysts said, any rebound in the housing sector will be long and drawn out. A recent increase in interest rates, for example, could hamper sales, they said. And the backlog of distressed homes on the market will drive down prices an additional 5 to 10 percent before they begin to rebound in 2011, said Patrick Newport, an economist for IHS Global Insight.

Historically, it has taken a while for home prices to rebound after a major decline, Newport said. Foreclosures are still rising and will eventually add to the inventory, forcing prices down more, he said. "I don't think [the inventory is] going to go down all that much simply because of all of the foreclosures hitting the market," he said.

The government is scheduled to release figures for May new-home sales today. Analysts expect a small increase in that measure, as well.