U.S. Home Sales at Lowest Level in More Than a Decade

U.S. Home Sales at Lowest Level in More Than a Decade
By DAVID STREITFELD
Copyright by The New York Times
Published: August 24, 2010
http://www.nytimes.com/2010/08/25/business/25econ.html?_r=1&hp


Housing sales in July plunged to their lowest level in more than a decade, exceeding even the grimmest forecasts.

The financial markets took the news badly, with the Dow Jones Industrials down about 100 points in early afternoon trading.

July was the first month that buyers could not qualify for a tax credit of up to $8,000, so analysts were expecting weak results. But their consensus called for a decline of about 13 percent.

Jennifer H. Lee, senior economist for BMO Capital Markets, called the numbers “truly gut-wrenching.”

Those on the front lines of real estate describe an absolute standoff between buyers and sellers.

“What few buyers are out there circle a listing like a vulture, waiting from the day of its debut until it’s left for dead, contacting us only after it has left the market to ask what it sold for and whether it’s taking backup offers,” said Glenn Kelman, chief executive of the online brokerage Redfin.

Mr. Kelman noted that what made the sales drop “even more breathtaking” was that it was happening in July, which is typically when demand peaks.

“Prices will have to drop again in most markets before buyers come back in force, and so sales volume will probably be in the tank at least until next spring,” he said.

Housing prices have been relatively stable for most of the last year. But even before the July drop in sales, analysts were expecting prices to fall another 5 or 10 percent this winter.

July sales were down 27.2 percent from June. It was the lowest rate for existing-home sales, which include houses, condos, co-ops and town houses, since 1999. For sales of single-family homes, it was the lowest rate since 1995.

The number of homes on the market increased only slightly but the large drop in sales was enough to push inventory levels up to 12.5 months. A normal market has an inventory level of less than six months.

Higher inventories tend to cause prices to decline, as many sellers compete to take advantage of fewer buyers.

The drop in sales came despite the lowest mortgage rates in decades.

The Realtor group was optimistic the fall-off would be temporary, as long as the economy improves — a rather big “if.”

“Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” the group’s chief economist, Lawrence Yun, said in a statement.