Joined: 17 Jul 2006
|Posted: Tue Jul 25, 2006 9:11 pm Post subject: Real Estate - Home Inventories Rise Sharply
|Existing-Home Sales Drop 1.3%
As Inventories Rise Sharply
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
July 25, 2006 3:42 p.m.
Sales of existing homes in the U.S. decreased in June for the eighth time in the past 10 months as interest rates continued to mount, but a gauge of consumer confidence unexpectedly swung up.
Home resales fell to a 6.62 million annual rate, a 1.3% decline from May's revised 6.71 million annual pace. May resales were originally seen at 6.67 million. NAR chief economist David Lereah said the housing market is flattening out.
The level of resales in June was above Wall Street expectations. Analysts predicted a 6.60 million rate of sales of previously owned homes. The average 30-year rate was 6.68% in June, up from 6.60% in May, according to Freddie Mac.
"Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us that the market is stabilizing," Mr. Lereah said.
The median home price increased to $231,000, compared with a revised $229,000 in May. That was up 0.9% from June 2005 and represented the smallest year-over-year price gain since May 1995.
The inventory of unsold homes rose to a new record of 3.725 million units, which is a 6.8 months supply at the June sales pace. Analysts believe that the growing level of unsold homes will further depress prices in coming months.
"The housing correction has a long way still to run," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Existing-home sales were mixed in the four regions of the U.S. Demand fell 2.3% in the South and 3.5% in the Northeast. Sales were flat in the Midwest and in the west.
Mr. Lereah said he believed that the decline in housing sales was beginning to level out. Sales of both new and existing homes set records for five consecutive years, but economists believe sales this year will post a decline, reflecting mortgage rates that have risen to the highest levels in more than four years.
The big worry is that sales will fall so sharply that it could send shockwaves through the entire economy, much as the bursting of the stock market bubble in 2000 contributed to the 2001 recession. Economists expect the decline in the economy to contribute to a slowdown in growth but not result in an outright recession.
Mr. Lereah said that while New York City, Boston, Chicago and Minneapolis had seen sales declines, cities such as Syracuse and Pittsburgh were experiencing rising sales.
By state, Maryland and Virginia were experiencing weakness while Texas, Georgia, North Carolina and Tennessee were enjoying sales increases, Mr. Lereah said.
Consumer Confidence Improves
Separately, U.S. consumer confidence unexpectedly showed a modest improvement in July, although households' view towards the future remained "cautious," a report Tuesday said.
The Conference Board, a private research group, said its index of consumer confidence for July moved to 106.5, from the revised 105.4 seen the month before. July's reading compares with economists' expectations of a 104.0 reading, and marks the second month of improving performance, although the index remains below April's 109.8, the highpoint of 2006.
"Consumer confidence continues to hold steady, with the prognosis little changed from last month," said Lynn Franco, who leads the Conference Board Consumer Research Center. She added, "present day conditions remain favorable" and "expectations for the months ahead remain cautious."
The group said its present situation index, a gauge of consumers' assessment of current economic conditions, rose to 133.0 from a revised 132.2 the prior month. Meanwhile, the consumer expectations index also tipped higher to 88.8, from 87.5 in June.
The group's report comes at a tender time for the U.S. economy, amid widespread expectations of a moderation in growth. But that slowdown is occurring while inflation pressures have mounted, and consumer surveys have for some time now been under pressure from surging gas prices.
Some analysts were concerned about the report, especially considering the seemingly contrary University of Michigan's midmonth report on consumer sentiment, which fell to a reading of 83 in July from 84.9 in June.
"The last time the gap between the two indexes was this wide was in 2000 just before the last recession. In fact, gaps of this size usually have preceded past recessions," said Brian Fabbri at BNP Paribas.
"The improvement in confidence in the past two months is not intuitive given the rise in gasoline prices, the more dangerous global environment developing in the Middle East, and the reduction in new job creation." Mr. Fabbri said. "Nevertheless, the Conference Board found that consumers thought more jobs were available than in June and that they were willing to buy big ticket items."
The Conference Board said that in its survey of 5,000 households, those that claimed economic conditions as "good" ticked up to 27.6% of the survey, versus 26.6% who held that opinion a month ago. However, those calling conditions "bad" also marked gains, hitting 15.5%, from June's 15.0%.
Labor conditions, a key determinant of consumer confidence levels, were "little changed," the Conference Board said. Survey respondents calling jobs "plentiful" increased to 28.6% in July, from June's 28%, while those calling jobs "hard to get" held steady at 19.9% of the poll.
The research group also said that the short term outlook "improved modestly" in July, and that those who expect their incomes to rise over coming months was virtually unchanged in July at 17.7% of respondents.
The cutoff date for responses to the survey was July 18.