Housing sales drop; GDP revised upward

By Dina ElBoghdady
Washington Post Staff Writer
Saturday, February 27, 2010

Sales of previously owned houses unexpectedly slumped in January for the second consecutive month, raising fresh concerns about the housing market's potential for rebound even as a new report showed that the economy expanded more than previously forecast at the end of last year.

Sales of existing houses, townhouses, condominiums and cooperatives fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million in January from December, the National Association of Realtors reported Friday. Many analysts had expected a slight gain.

The sales are 11.5 percent higher than they were a year earlier, but the monthly trend is "not encouraging," the group's chief economist, Lawrence Yun, said in a statement. The group has set its sights on spring, when it expects more people to take advantage of a recently renewed tax credit for first-time home buyers and others that is due to expire in April.

The disappointing sales figures were somewhat offset by a government report that showed the U.S. economy grew faster than predicted in the fourth quarter. The gross domestic product, the broadest measure of economic output, rose at a 5.9 percent annual pace from October through December, instead of 5.7 percent as previously estimated by the Commerce Department.

But high unemployment and declining consumer confidence continue to dog the housing sector. Consumer sentiment slipped to 73.6 in February from 74.4 in January, fueled by rising concerns about jobs, according to a Reuters/University of Michigan index released Friday. As people feel less secure about jobs, they are less likely to spend more money on goods and services, including big-ticket items such as homes.

"The housing sales numbers are weak because we have a weak labor market, and when that improves we'll see people buying and selling homes," said Patrick Newport, an economist at IHS Global Insight.

The January dip in home sales follows a more extreme 16 percent drop in December and reverses a the huge pickup in sales posted late last year. The disappointing January results came just days after the federal government reported that sales of newly built homes fell in January to their lowest level since the Commerce Department began tracking them in 1963.

Many analysts attribute the decline in both cases to the "hangover" effect from the original $8,000 tax credit for first-time home buyers.

That tax credit was due to expire Nov. 30 and potential buyers rushed to take advantage of it as the deadline approached. Analysts say those sales pulled people into the market sooner and cut into potential purchases from future months, contributing to the poor sales results this year. Unusually bad weather in many parts of the country has also played a role.

The $8,000 tax credit has since been extended to first-time buyers who sign a contract by April 30 and close by June 30. A $6,500 refund is also available to some current homeowners.

Sales should pick up as the new deadline approaches, helping to shrink the supply of homes on the market and further stabilize prices, the Realtors group said. The median price of a previously owned home was $164,700 in January, unchanged from a year earlier.

Clearing out foreclosures and other distressed properties remains key because those homes tend to drag down prices. Distressed properties made up 38 percent of all sales last month, the group said.

Existing-home sales fell in every region of the country in January from the previous month. The biggest drop was in the Northeast, which suffered a 10.9 percent drop. But sales are 22.4 percent higher than a year earlier.

In the South, which includes the Washington region, sales fell 7.4 percent in January from December. But they rose 12 percent from January 2009. The median price in the South was $140,200, down 2 percent from a year earlier.

About 3.3 million existing homes were up for sale in January. That's a 7.8-month supply of homes at the current sales pace, up from a 7.2-month supply in December.

Staff writer Frank Ahrens contributed to this report.

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