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Sales of US homes fell to the lowest level in almost five years in July and the glut of unsold properties climbed to its highest since 1991, as mortgage-market turmoil rippled through the housing industry.
With no recovery in sight for housing, lower property values and higher mortgage costs threaten to weaken consumer spending, economists said.
The Federal Reserve this month acknowledged a growing risk to economic growth because of the rising cost of credit. An index of homebuilder shares fell to a four-year low.
Purchases declined 0.2 per cent from the prior month to an annual rate of 5.75 million, the National Association of Realtors said yesterday in Washington. While the retreat was less than forecast, inventories of single-family homes rose to the equivalent of a 9.2 months' supply. From a year earlier, existing-home sales dropped 9 per cent.
"We are very likely to see home sales continue to drop," said Ethan Harris, chief economist at Lehman Brothers in New York, who accurately predicted the number. "There's a big imbalance between supply and demand, with lots of people who want to sell and lots of hesitant buyers."
Sales were projected to fall 0.9 per cent to a 5.7 million annual rate, according to the median estimate of 74 economists in a Bloomberg News survey. Predictions ranged from 5.5 million to 6 million. Existing home sales averaged 6.51 million in 2006.
The median price of an existing home dropped 0.6 per cent in July from a year ago to US$228,900, the Realtors group said.
The supply of homes for sale at the end of the month climbed 5.1 per cent to 4.59 million. At the current sales pace, that represented 9.6 months' worth, up from 9.1 months' worth at the end of the previous month.
The inventory of unsold single-family homes rose to 3.85 million, representing a 9.2 months' supply, the most since October 1991.
"Unfortunately, worse news lies ahead," said Nigel Gault, chief US economist at Global Insight in Lexington, Massachusetts. Stricter borrowing rules mean more foreclosures and fewer qualified buyers, which will be "adding up to lower home sales and lower prices. It is hard to see a bottom before mid-2008".
Purchases of single-family homes declined 0.4 per cent to an annual rate of 5 million. Sales of condominiums and co-ops rose 1.4 per cent to 750,000.
The Midwest accounted for the decline in sales. Purchases declined 2.2 per cent in the Midwest and were unchanged in the South. They increased 1 per cent in the Northeast and 1.8 per cent in the West.
Monthly figures on home resales are compiled from contract closings and may reflect sales agreed on weeks or months earlier. New home purchases are recorded when a contract is signed, making them a more timely barometer. Resales account for about 85 per cent of the US housing market.
New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department reported last week.
-Bloomberg
