Home sales stabilize; recovery still weak

Home sales stabilize; recovery still weak

WASHINGTON — Nationwide home sales may finally have hit bottom, new data shows, but a host of thorny problems hinder recovery.

Sales of previously occupied homes rose by 2.4 percent from April to May — the third monthly increase this year — but the results missed analysts' expectations.

Home sellers still are competing against a growing number of bargain-priced foreclosures, buyers are paying higher mortgage rates and new rules for property appraisers are delaying or scuttling many deals.

"We have just been flooded with e-mails, telephone calls on the appraisal problems," said Lawrence Yun, the Realtors' chief economist.

The National Association of Realtors said Tuesday home sales rose to a seasonally adjusted annual pace of 4.77 million, up from a downwardly revised rate of 4.66 million in April.

About one in three homes sold last month was a foreclosure or distressed sale, dragging down the median price to $173,000 — 16.8 percent below a year ago.

The size of the price drop, however, reflects a crush of first-time buyers and investors snapping up bargain-priced homes. A government home-price index also released Tuesday showed home prices were flat between March and April. That index, however, only measures the values of homes with government-backed loans, so it underestimates the weakness at the top end of the market and doesn't include many foreclosures.

Marlene Rossi had to shave 26 percent off her original listing price of $719,000 to sell her four-bedroom colonial in Congers, N.Y., on the west side of the Hudson River. She first listed the house in September 2007, thinking it would take only six months to sell. She accepted an offer this month for $530,000.

Rossi, 59, and her husband now have to rethink their retirement plans. Rossi is a nanny and her husband works in a golf pro shop and as an umpire for baseball games.

Instead of being able to buy a condominium without a mortgage, she said, "we will only be able to put a down payment on it and we will still have to work."

The burst of the housing bubble pushed the U.S. economy into the worst financial crisis in seven decades. Now, the economy is hobbling on the recovery of the real-estate market. Corporate layoffs are forcing more cash-strapped homeowners to miss their monthly mortgage payments. Unemployment, currently at 9.4 percent, isn't expected to peak until mid-2010 and foreclosures should crest about six months after.

"We're in the bottom of the seventh-inning" of the housing crisis, said Mark Zandi, chief economist at Moody's

But there's still a risk the housing bust could go into extra innings.

Interest rates, for example, have climbed back from their all-time lows this spring. The average rate on a 30-year, fixed-rate mortgage was 5.38 percent last week, according to Freddie Mac.

Mindful of the negative trends, Patrick Newport, an economist with IHS Global insight, says home sales could fall another 9 percent from last month's levels. "Things are going to get a little bit worse," he said.

Nevertheless, there are other signs the market is turning around. The number of unsold homes fell 3.5 percent in May. That means there's a 9.6 month supply at the current sales pace, compared with six months or fewer in a normal market.

The inventory figures, however, don't reflect the large number of houses being held off the market by owners reluctant to sell while prices are falling.

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