US Home Sales Rise Second Straight Month In May

WASHINGTON (Dow Jones)–Existing-home sales improved again in May, but falling prices and bloated supply promise to make a housing sector recovery slow.

Home resales rose by 2.4% to a 4.77 million annual rate from 4.66 million in April, the National Association of Realtors said Tuesday.

It was the second straight increase and the fourth in six months. The increase would have been bigger if not for poor appraisals, the realtors indicated.

About a third of May resales involved distressed property. Foreclosures have pushed prices lower. The median price for an existing home last month was $173,000, down 16.8% from $207,900 in May 2008.

"We need to have increased sales to stabilize prices," NAR economist Lawrence Yun said.

While lower prices make houses cheaper, the drop also lowers household net worth and can discourage a purchase as a would-be buyer awaits a better deal. Prices are falling because of excess supply.

"We just experienced the longest, largest housing bubble in U.S. history," said Mike Larson of Weiss Research. "As a result, the recovery process will be a long, drawn-out affair."

The data Tuesday showed inventories of previously owned homes fell last month, down 3.5% to 3.8 million available for sale. That represented a lower – yet still-elevated – 9.6-month supply at the current sales pace, compared to 10.1 in April.

"There is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market," MFR Inc. analyst Joshua Shapiro said.

The problem with appraisals could delay recovery, too, according to Yun. He says reports of problems have been "snowballing from across the country, with many contracts falling through at the last moment."

"There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected," he added.

Tighter credit has hurt home sales – as has a quarter-century-high unemployment rate of 9.4%. A Labor Department report Tuesday showed the number of U.S. workers involved in mass layoffs rose in May, climbing to 312,880 from 271,226 during April; these people are identified as initial filers for unemployment insurance.

Realtors hope the $8,000 tax credit for first-time home buyers, inserted in the Obama administration’s economic stimulus package, keeps prodding demand. Previously owned home sales, year over year, were down 3.6% from the pace in May 2008, Tuesday’s report said.

Low mortgage rates have encouraged buying amid the recession. But rates have climbed. The average 30-year mortgage rate was 4.86% in May, up from 4.81% in April, Freddie Mac (FRE) data show. Rates have gone up in June and analysts fear rising borrowing costs might restrain demand.

"There is a danger that the recent surge in mortgage rates will snuff out a recovery before it even begins, said Paul Dales, an analyst for Capital Economics.