Sales of existing homes plunge to 15-year-low

A much sharper-than-expected plunge in U.S. existing home sales in July added to worries about the health of the U.S. economic recovery.
By Dina ElBoghdady and Ariana Eunjung Cha
Tuesday, August 24, 2010; 8:50 PM

Sales of previously built single-family homes plunged in July to their lowest level since May 1995 as job fears trumped low mortgage interest rates and relatively affordable home prices.

Sales of existing single-family homes, condominiums and townhouses fell to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors reported Tuesday.

That's a 27.2 percent drop from June, about twice as much as analysts surveyed by Bloomberg expected. That's also a 25.5 percent drop from the same time a year ago. The sales of all these housing types combined was the lowest since the group started tracking the numbers in 1999.

The results, which measure only completed purchase transactions, are well below what experts who track the market projected. They capture the unease about the housing market's recovery and the economy overall as unemployment remains stubbornly high.

Steven Ricchiuto, chief economist for Mizuho Securities in New York, said the drop was "so outside the statistically norm" that it took even the most pessimistic economists by surprise.

Scott Brown, chief economist at Raymond James & Associates, said the news shows "this is a pretty dicey time" for the U.S. economy.

And Paul Dales, an economist for Capital Economics, called the numbers "eye-wateringly weak."

"It suggests that without the housing tax credit, housing market activity is very, very weak," Dales said. "That would eventually lead to a double dip in house prices."

Existing home sales surged in the early spring largely because of a lucrative tax credit program that targeted some first-time buyers and repeat buyers. Many economists predicted that home sales would drop briefly when the program expired April 30 and would then recover. But now, many are questioning how soon the rebound will occur, and July's results add to those fears.

Sales fell in every region of the country, led by a 35 percent drop in the Midwest. In the Northeast, sales were down 30 percent; in the West, 25 percent; and in the South, 23 percent.

First-time buyers, the group economists relied on heavily to help spur market sales, appear to be retrenching. Those buyers made up only a little more than 38 percent of sales in July, down from 43 percent in June.

Lawrence Yun, chief economist for the Realtors group, said the soft sales pace probably will continue through September. But he said it could pick up quickly, "provided the economy consistently adds jobs" now that mortgage rates are in the mid-4 percent range.

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