The number of people who bought previously occupied homes fell in July for the third time in four months. This year is on pace to be the worst in 14 years for home sales, as more Americans worry that the economy could slip back into another recession.
Home sales fell 3.5 per cent last month to a seasonally adjusted annual rate of 4.67 million homes, the National Association of Realtors said Thursday. That’s far below the six million that economists say must be sold to sustain a healthy housing market.
The dismal report on home sales contributed to a rough day on Wall Street. Stocks plummeted in midday trading on fears that the global economy is slowing. The Dow Jones industrial average fell more than 400 points within the first hour of trading.
Many people are reluctant to purchase a home two years after the recession officially ended. Sales are lagging behind last year’s 4.91 million sold – the weakest in 13 years.
Bigger down payments, tougher lending rules, high debt and a shortage of desirable starter homes have kept many would-be buyers away. Even people with good credit and enough money for a down payment are holding off because they are worried home prices will keep falling.
First-time home buyers made up just 32 per cent of sales. First-time buyers are critical to strong housing markets and normally make up about half of all sales. Their purchases of low and moderately priced homes also allow sellers to move up to pricier homes.
The weak data show “the housing market will not save the U.S. economy,” said Paul Dales, senior U.S. economist at Capital Economics.
Since the housing boom went bust in 2006, sales have fallen in four of the past five years. Declining home prices and super-low mortgage rates haven’t been enough to boost sales this year.
The average rate on a 30-year fixed mortgage fell to 4.15 per cent this week – the lowest level on records dating back to 1971.
Some sales are falling apart at the last minute. At least 16 per cent of deals were cancelled ahead of closings last month. That’s four times the number in May and the highest level since such records began being kept more than a year ago. A sale isn’t final until a mortgage is closed.
Buyers have cancelled purchases after appraisals showed that the homes were worth less than the buyers’ initial bids.
“Buyers are worried about falling house prices, the job outlook, the stock market and gridlock in Washington,” said Patrick Newport, U.S. economist at IHS Global Insight.
Sales were also hampered in the West by new maximum loan limits by government-controlled mortgage buyers Fannie Mae and Freddie Mac. On Oct. 1, the maximum loan in high-cost areas will fall from $729,750 (U.S.) to at least $625,500 and, in some areas, to $550,000. Some buyers will be unable to finance their purchases in cities where homes are more expensive, such as New York, San Francisco and Washington.
Foreclosures and short sales – when a lender agrees to sell for less than what is owed on a mortgage – made up about 29 per cent of all home sales last month. That’s up from about 10 per cent in past years. And a wave of foreclosures is being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices.
Investors have targeted foreclosures and other deeply discounted properties. Their purchases accounted for 18 per cent of sales in July.
The median sales price fell in July to $174,000, according to the Realtors’ group. June’s large jump in sales prices was attributed to missing data that had not been collected from Phoenix, which has been hit hard by foreclosures and dropping prices.
Most economists say home prices will keep falling, by at least 5 per cent, through the rest of the year. Many forecasts don’t anticipate a rebound in prices until at least 2013.
Sales were uneven across the country. They rose 2.7 per cent in the Northeast and 1 per cent in the Midwest. They fell 1.6 per cent in the South and 12.6 per cent in the West.
The glut of unsold homes declined slightly in July to 3.65 million homes. At last month’s sales pace, it would take 9.4 months to clear those homes. Analysts say a healthy supply can be cleared in six months.