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Purchases of U.S. Existing Homes Fell in June

Purchases of U.S. Existing Homes Fell in June
A Coldwell Banker sign stands outside an existing home for sale in Durham, North Carolina. Photographer: Jim R. Bounds/Bloomberg

July 22 (Bloomberg) -- Sales of U.S. previously owned homes fell in June for a second month, adding to evidence the market will slump as the effects of a federal tax credit fade.

Purchases of existing houses dropped a less-than-forecast 5.1 percent to a 5.37 million annual rate, figures from the National Association of Realtors showed today in Washington. The number of transactions will be “very low” in coming months, reflecting the end of the government incentive, the group’s chief economist said in a news conference.

The tax credit of up to $8,000 boosted sales earlier in the year, releasing pent-up demand and indicating the market will be slow to recover. Increasing foreclosures are swelling the number of unsold homes, putting pressure on prices and keeping buyers out of the market as unemployment hovers near 10 percent and the economy cools.

“We’re seeing the first stage of the cooling as the tax-incentive purchases fall off,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who projected sales would drop to a 5.38 million pace. “We will see prices retreat as the demand falls off without the tax incentive.

Stocks held earlier gains after the report on improving earnings forecasts at companies from United Parcel Service Inc. to AT&T Inc. The Standard & Poor’s 500 Index rose 2.1 percent to 1,092.23 at 10:25 a.m. in New York.

Other reports today showed the economic outlook dimmed and more Americans than projected filed applications for unemployment benefits.

Leading Index

The Conference Board’s index of leading indicators fell 0.2 percent in June, according to figures from the New York-based research group.

Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed. The survey median projected claims would climb to 445,000.

Existing home sales were forecast to decline to a 5.1 million pace, according to the median forecast of 74 economists in a Bloomberg News survey. Estimates ranged from 4.25 million to 6.2 million. May’s sales rate was 5.66 million, unrevised from the previous estimate.

Purchases of existing homes increased 7.2 percent compared with a year earlier prior to adjusting for seasonal patterns.

The median price increased 1 percent to $183,700 from $181,800 in June 2009.

The number of previously owned homes on the market climbed 2.5 percent to 3.99 million. At the current sales pace, it would take 8.9 months to sell those houses compared, the most since August 2009.

More Supply

The supply is likely to jump to 10 or more in coming months as sales slow, said Lawrence Yun, the group’s chief economist.

Like other housing data, sales of existing homes have been whipsawed by the timing of the tax credit. After surging to a two-and-a-half year high of 6.49 million in November, the month of the credit’s initial expiration, they dropped for the next three months. Demand then recovered in March and April, which was the deadline for signing contracts, only to slip again the following month.

The June 30 deadline to close deals, which is when existing home sales are tabulated, was extended to the end of September to ensure prospective buyers had enough time to complete transactions. The majority of those closings will have already occurred, so the extension will not markedly lift demand, said Zach Pandl, an economist at Nomura Securities International Inc. in New York.

Economic Recovery

Housing’s inability to sustain a recovery is one reason the economic expansion is not gaining speed. Reports earlier this week showed housing starts fell in June to the lowest level since October, and homebuilder sentiment fell this month to its lowest level since April 2009.

Foreclosures and short-sales are boosting the so-called shadow inventory, and competing with owners trying to sell properties. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.

Sales at Miami-based Lennar, the third-biggest U.S. homebuilder by revenue, were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24.

‘‘The new-home market and housing in general still face serious headwinds from current economic and legislative conditions,” Miller said on a conference call with investors. “The prospect of additional delinquencies ahead continues to moderate this recovery as shadow inventory continues to be absorbed.”

Cheaper borrowing costs are helping mitigate the damage. The average rate on a 30-year fixed mortgage fell to 4.59 percent last week, the lowest since data collection began in 1990, the Mortgage Bankers Association said yesterday.

To contact the reporter on this story: Bob Willis in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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