Home Sales Drop 4.1% in July

The pace of existing U.S. home sales fell more than expected in July as a measure of the supply of unsold homes was the highest in more than 13 years, signaling a deepening housing sector downturn, a trade group report showed Wednesday.

Sales of existing homes dropped 4.1% in July, the fourth consecutive monthly decline, to a seasonally adjusted annual rate of 6.33 million units, the National Assn. of Realtors said. That was down from a revised 6.6-million-unit pace in June.

The July pace, the slowest since January 2004, was 11.2% below the July 2005 pace of 7.13 million.

Economists polled by Reuters had expected home resales to slow to a 6.55-million-unit pace from June’s originally reported rate of 6.62 million units.

Analysts predicted more pain as lofty home prices in many areas correct, keeping buyers on the sidelines and slowing consumer spending. A deep slide could slow the economy enough to persuade the Federal Reserve to refrain from further interest rate hikes to curb inflation.

“I don’t think this necessarily means the Fed is done, but it’s one more sign that the housing market is going to be a drag on growth,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

The data sent battered housing stocks down further.

U.S. mortgage applications rose for a third straight week as falling interest rates prompted homeowners to refinance loans. The refinancing increase offset a decline in mortgages to buy homes. The Mortgage Bankers Assn. reported its seasonally adjusted index of mortgage application activity last week edged up 0.1%.

Another key indicator of the U.S. housing market will be released today. Analysts expect new single-family homes sales to fall slightly to a 1.100-million-unit annual rate in July from a 1.131-million rate in June.

According to the Realtors data, the national median existing home price for all housing types was $230,000 in July, up 0.9% from July 2005, the smallest year-over-year price gain since May 1995.

The supply of homes for sale at the end of July jumped by 3.2% to 3.86 million units. This represented 7.3 months’ supply, the highest since April 1993.

Realtors Chief Economist David Lereah said the increase in the supply of available homes so far this year was the sharpest on record.

“What we are experiencing right now is an inventory and price adjustment,” Lereah said. The housing market is in transition, “and there is pain in that transition,” he said.

Lereah said the slowdown represented both cooling of overheated high-priced markets and sales declines in some markets that were struggling with a slowing economy, such as Midwest manufacturing cities. Some “non-boom” markets that were exhibiting strength in recent months were now beginning to cool, he added.

Nonetheless, Lereah held out hope that if prices fall, buyers would return to the market. “Buyers have lost confidence and they are on the sidelines,” he said. “If prices continue to adjust, then it will draw buyers who are on the sidelines.”

Existing home sales in the West dropped 6.4% to an annual pace of 1.32 million in July and were down 18% from a year earlier. The July median price in the West fell 0.3% from a year earlier to $348,000.

Single-family home sales dropped 5% to a seasonally adjusted annual rate of 5.51 million in July from 5.8 million in June. The median existing single-family home price was $231,200, up 1.5% from a year earlier.