Existing Home Sales Drop For Sixth Month To Slowest Pace Since 2002

WASHINGTON (AP) – Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years.

The National Association of Realtors said that sales of existing single-family homes dropped by 4.3 percent in August, compared to July. Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002. The housing market has been battered by the steepest downturn in 16 years. Those problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising defaults in subprime mortgages.

The median price of an existing home – the point where half sold for more and half for less – edged up slightly in August to $224,500, an increase of 0.2 percent from August 2006. It marked the first year-over-year price increase after a record 12 straight months of declining prices. However, many analysts believe that sales and prices will fall further as the housing market receives additional blows from rising default rates that are dumping more homes on an already glutted market and causing lenders to tighten standards.

These factors have made it harder for potential borrowers to qualify for loans. A separate report on housing prices in 20 large cities done by Case-Shiller showed show prices dropping a sharp 3.9 percent in July compared to July 2006. Economists said that report was probably a better reflection of the downward pressure on prices that is being exerted by record high inventory levels. “Another month of falling sales and rising inventories tells us the housing market is still a basket case,” said Joel Naroff, chief economist at Naroff Economic Advisors Inc.

“It is going to take a long time to work off that imbalance and undoubtedly prices will have to fall a whole lot further.” Some economists warned that even worse news could be ahead because of the financial market turbulence in August. “August’s sales do not reflect the full impact of the credit crunch, which hit financial markets in mid-month, since most sales were financed with loans approved weeks beforehand,” said Patrick Newport, an economist at Global Insight.

Sen. Charles Schumer, D-N.Y., said the latest news on housing showed that the government needs a more vigorous response to the threat that as many as 2 million homeowners could lose their homes in the coming 18 months as low introductory rates on subprime mortgages, loans offered to people with weak credit histories, reset at sharply higher levels. “The spillover of the subprime mortgage mess into the larger housing market deserves a strong, decisive response from the administration to protect homeowners, consumer spending and the overall economy before things get worse,” Schumer said in a statement.

The Federal Reserve responded last week to fears that all the problems in housing and credit markets could cause a recession by cutting a key interest rate by a bigger-than-expected half point. Many economists believe that if the Fed continues to cut rates for the rest of the year that should be enough to keep the country out of a recession. Sales were down in all parts of the country in August. The West saw the biggest drop, a decline of 9.8 percent, followed by declines of 5.2 percent in the Midwest, 2.7 percent in the South and 2 percent in the Northeast.

The fall in sales pushed the inventory of unsold homes to a record 4.58 million in August. That means it would take 10 months to exhaust the inventory of homes on the market at the August sales pace, also a record figure. Analysts said that the credit crunch in August, which sent stock prices plunging around the globe, had a significant impact on the availability and interest rate levels for so-called jumbo mortgages, loans above $417,000.

“The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through,” said Lawrence Yun, senior economist for the Realtors. “Once we get through these disruptions, we’ll get a better sense of where the actual market is in late fall as conditions begin to normalize,” Yun said. However, other private economists are forecasting that sales of both existing and new homes will not stabilize until mid-2008 because they believe it will take that long for prices to fall far enough to reduce the large number of unsold homes.

By MARTIN CRUTSINGER AP Economics Writer

(Copyright 2007 by The Associated Press. All Rights Reserved.)