Sales of Existing Homes Drop 1.7% in August

Sales of U.S. existing homes fell 1.7% in August, a national real estate trade association said Wednesday, as home buying settled from record levels earlier in the year.

Sales of previously owned homes slid to a seasonally adjusted annual rate of 5.28 million units from an upwardly revised 5.37 million pace in July, the National Assn. of Realtors said.

The August sales level fell short of the expectations of analysts polled by Reuters who, on average, had expected a 5.4-million-unit pace.

“It’s still a very healthy pace, but certainly we are winding down from the boom,” NAR chief economist David Lereah said.

But other analysts said the data show signs consumer confidence is beginning to crack in the face of job pressures, tumbling stock markets and the prospect of war with Iraq.

“Even with low interest rates, if jobs and the economy stay weak, and risks to balance sheets from the bad stock market and international risks remain, I think we’re going to see hesitation in buying big ticket items like homes,” said Allen Sinai, chief economist for Decision Economics.

Home-buying levels surpassed a 5.7 million sales pace in four of the first five months of 2002, but have been below the 5.4 million pace for the last three months. Lereah said his forecast is for home sales to hit more than 5.4 million units for the year, breaking last year’s record of 5.3 million.

But Sinai said that outcome would reflect the performance of the first half of the year, not the slowing trend.

“The housing area has begun to soften and will weaken more as we move through the autumn and into next year,” he said.

Housing has been thriving even as much of the economy has stayed lackluster in the aftermath of last year’s recession. Buyers have taken advantage of the lowest rates in over four decades to buy, refinance and remodel homes.

Rates on the 30-year fixed-rate mortgage hit new lows this week. The Mortgage Bankers Assn. said Wednesday that rates dipped to 5.85%, the lowest since the MBA began tracking rates in 1990.

Still, in spite of attractive rates and the volatile stock market, housing is feeling the effect of the uncertain U.S. economic recovery, Lereah said.

“We could not sustain a record-setting pace. The economy is still sluggish,” he said. But rising mortgage applications and deeper inventories are signs home sales will continue at a strong level, he said.

The median house price rose to $163,600 in August from $162,500 the preceding month, and was up 6.4% from August a year ago, NAR said. Inventories also rose. There were 2.2 million homes for sale in August, or a five months’ supply at current sales rates, up from a 4.7 months supply in July.

Existing-home sales rose 2.2% in the West, but fell 1.8% in the South, 5.9% in the Midwest, and 1.6% in the Northeast.