The slump persists: Home sales tumble across US

Sales of existing homes tumbled more sharply than expected in June, pushing activity down to the lowest level in more than a decade.

With an already huge glut of homes on the market, median prices fell compared to a year ago and analysts predicted prices would keep falling until next spring as tighter credit, a slipping job market and rising foreclosures scare potential buyers away.

The National Association of Realtors reported Thursday that sales dropped by 2.6 percent last month to a seasonally adjusted annual rate of 4.86 million units, the slowest sales pace since the first quarter of 1998.

The decline was more than double the 1 percent drop that economists had been expecting and left sales 15.5 percent below where they were a year ago.

The downward slide in sales depressed prices, too. The median price for a home sold in June dropped to $215,100, down by 6.1 percent from a year ago. That was the fifth largest year-over-year price drop on record.

Inventories of homes on the market rose by 0.2 percent to 4.49 million units, meaning it would take 11.1 months to exhaust the current backlog at the June sales pace, the second highest level in the past 24 years. The glut of unsold homes is being made worse by a rising wave of foreclosures.

The steeper-than-expected fall in home sales abruptly ended a stock rally being driving by good earnings news. The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points.

Sales of existing homes dropped in all regions of the country in June except the West, which posted a 1 percent sales increase. Sales fell by 6.6 percent in the Northeast, 3.4 percent in the Midwest and 3.1 percent in the South.

Analysts said the slight sales rebound in the West reflected big price declines in many parts of California that are helping to make homes affordable once again.

"California is on the leading edge of a housing recovery and that is because prices are falling fast in many areas and that is restoring affordability," said Mark Zandi, chief economist at Moody's Economy.com. But he predicted any rebound nationally will be slow in coming, reflecting the continued surge in foreclosures as many subprime mortgages reset to higher rates.

"It will be a long and painful end to this downturn but at least we are beginning to see some signs of the end," Zandi said.

Many analysts said they expected sales would stop falling by the end of this year and prices would stabilize by next spring although they said any significant rebound in prices could be years away.

Seeking to address the housing crisis, the House on Wednesday approved a sweeping rescue aimed at helping as many as 400,000 homeowners avoid foreclosure. It would also bolster the stability of mortgage giants Fannie Mae and Freddie Mac by expanding the resources the federal government can extend to the two mortgage giants.

Lawrence Yun, chief economist for the Realtors, said a significant feature of the rescue package is a tax credit worth up to $7,500 for first-time home buyers who purchase between April 9 of this year and July 1, 2009. Yun estimated that up to 3 million first-time home buyers could qualify for that tax break, providing a sizable boost to sales at a critical time.

Other private economists were not as optimistic, pointing to all the problems facing the economy right now from rising layoffs to plunging consumer confidence and tighter lending standards that banks are imposing in the face of billions of dollars lost from bad mortgage loans.

Another potential threat is rising mortgage rates with Freddie Mac's nationwide survey showing that 30-year mortgages jumped to 6.63 percent this week, the highest level in nearly a year, reflecting financial market turbulence.

"The housing bill working its way through Congress has some very positive elements but it would be easy to negate those features if mortgage rates keep rising," said Brian Bethune, chief U.S. financial economist at Global Insight.