US property sales plummet spreading concern that economic recovery is slowing

Sales fell to 3.83 million, the lowest level since the National Association of Realtors (NAR) began publishing its report in 1999.
 
They were widely expected to fall in the wake of the ending of the homebuyer tax credit on April 30 which is widely regarded as having boosted sales, but few expected such a dramatic fall.
 
The news will increase fears that the US is heading for a double dip in its real estate market and the fact that sales decreased in each region of the country during the month will add to this.
 
The latest report from the NAR also shows that sales of distressed properties now account for about a third of all sales, some 32%. Single family home sales, which account for the majority of sales, fell 27.1% to 3.37 million, the lowest rate since 1985.
   
Lawrence Yun, chief economist at NAR, expects the trend to continue for some time. ‘Buyers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,’ said Yun.
 
Yun said the pace could recover quickly if the economy consistently adds jobs, as mortgage interest rates remain low and historically high housing affordability conditions persist.
 
‘Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses. Over the short term, high supply in relation to demand clearly favours buyers. However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward,’ he explained.
 
The report also shows that total housing inventory rose 2.5% to 3.98 million homes, representing more than a year’s supply. The unsold inventory pace is up from 8.9 months supply in June but nearly 13% below the record of 4.58 million in July 2008, according to the NAR.
 
Existing home sales in the Northeast declined 29.5% in July and are 30.3% off the year ago pace. July sales in the Midwest plummeted 35% from the prior month and are down a third from 2009. The level of sales in the South decreased 22.6% to 1.54 million homes, which is nearly 20% lower than last year. In the West, existing home sales dropped by a quarter during the month to 870,000, off 23% from the year earlier.
 
Analysts are concerned that the gloomy news in the real estate sector could lead to poorer economic growth which is likely to have effects beyond the US. ‘The disappointing US home sales data has investors worried that the global recovery is unravelling,’ said Chris Lafakis, an economist at Moody’s.
 
Societe Generale analyst Aneta Markowska said it is worrying that there seems to be no response to the historic drop in mortgage rates and that could be due to job fears. ‘This inability to induce demand may be explained in part by poor employment prospects. If businesses scale back further on hiring plans, it would be hard to imagine any material improvement in housing demand,’ Markowska said.
 
Housing and employment continue to be major problems for the US recovery according to analysts. ‘All of the action earlier this year appears to have been driven by the tax credit. There’s no sign of any underlying recovery despite rock bottom interest rates. A sustained upturn will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace,’ said Nigel Gault, chief US economist for IHS Global Insight.