By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, June 23, 2010; A14
Sales of previously built homes dropped in May after huge gains the previous two months, a sign that the federal tax credit that helped energize sales at the start of the selling season has sputtered out sooner than expected.
The National Association of Realtors reported Tuesday that sales of existing single-family homes, townhouses, condominiums and cooperatives fell 2.2 percent, to a seasonally adjusted rate of 5.66 million units, in May from April, snapping hopes of a robust housing recovery anytime soon. Analysts surveyed by Bloomberg had expected an increase of 6 percent.
Sales stalled or dropped in most parts of the country even though interest rates and home prices remain relatively low. In the Northeast, sales plunged 18.3 percent after surging in April. They stagnated in the Midwest and South. The only month-over-month gain was in the West, where sales rose 4.9 percent.
"It's a market that's stalling out," said Mike Larson, a housing analyst at Weiss Research. "The extra kick we got this spring from the tax credit is clearly running out of steam."
The housing market's decline dragged down the economy, and its rebound is critical to getting the country back on solid economic footing. Sales figures have been closely watched for that reason, with intense focus on the month-to-month data for signs of the housing market's trajectory.
Starting in early spring, sales activity perked up as buyers rushed to take advantage of the tax credit -- $8,000 for some first-time buyers and $6,500 for certain repeat buyers. To qualify for the credit, consumers had to sign a contract by April 30 and close on it by June 30. The group's report captures only contracts that closed in the month, not the ones that were signed.
Many analysts had predicted the tax-credit deadlines would entice people into buying homes earlier than they had planned, thereby eating into future sales. But they also had predicted that the tax credit would have a longer-lasting effect, lifting sales through June.
Instead, sales dipped in part because of mortgage processing delays that kept many buyers from closing on their purchases, including problems with appraisals, said Lawrence Yun, chief economist for the Realtors association.
Yun estimates that 180,000 buyers who signed a contract by April 30 will not be able to close by June 30. The industry is supporting a Senate proposal that would extend the closing deadline to Sept. 30.
In the meantime, some consumers who were stymied by delays in May could resolve their issues by June, adding to the June sales figures.
But even getting past the backlog, the May report adds to other disappointing housing-related data. Lumber prices, a good indicator of housing market activity, have been dropping, Larson said. Mortgage applications plunged last week, according to an industry trade group. And confidence among home builders sagged in June, another industry group reported.
There were some bright spots in the May report, especially when compared with conditions a year ago.
Sales jumped 19.2 percent last month compared with May 2009, when the economy was in recession, and rose in every region of the country. In the Washington region, sales were up 12.1 percent last month from a year ago.
May sales also climbed at least 10 percent since the winter months, said Stuart Hoffman, chief economist at PNC Financial Services Group. The elevated sales reflect a pickup in demand, which translated into higher prices, he said.
The Realtors report showed that the national median price for existing homes was $179,600 in May, up 2.7 percent from May 2009. Prices in the Washington area rose 3.8 percent to $330,400 in May from $318,200 a year ago.
The sales of foreclosures and other distressed sales, which tend to push down prices, slipped to 31 percent last month compared with 33 percent in April.