Sales of existing homes rose 3.1% in July, surpassing expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.
The number of unsold properties hit an all-time high, however, the latest indication that the worst housing slump in decades is far from over. Prices nationwide are not expected to hit bottom until early next year.
The National Assn. of Realtors reported Monday that sales rose to a seasonally adjusted annual rate of 5 million units, down from June's downwardly revised rate of 4.85 million units. Sales had been expected to rise by only 1.6%, according to economists surveyed by Thomson Reuters.
"The process of a recovery has begun," said Joel Naroff, president of Naroff Economic Advisors. "It's not going to be short and swift, but it's begun nonetheless."
Home sales were about 13% lower than a year earlier and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down 7.1% from a year earlier.
Despite the third monthly sales increase this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.
That represented an 11.2-month supply at the July sales pace, matching the all-time high set in April.
Until the inventory level is reduced to more normal levels, analysts say, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.
Between 33% and 40% of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group.
While buyers are pouncing on lower-priced homes -- especially in California, Florida and Nevada -- sales are sluggish in formerly stable states such as Texas.
"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.
One key unknown is the future ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have dramatically cut back the availability of mortgages as they cope with mounting losses from foreclosures.
President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if the lender agrees to take a loss on the initial loan.
Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lenders or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's Economy.com.