Existing home sales drop 2.7 percent last month

Sales of existing U.S. homes unexpectedly fell in August for the first time in four months, signaling the housing recovery will be slow to gain speed.

Purchases dropped 2.7 percent to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008.

Job losses indicate more Americans may lose their homes, swelling the glut of unsold properties. Even so, the housing recession that crippled the economy is easing as foreclosure- driven price declines, tax credits to first-time buyers and near record-low borrowing costs have helped stabilize demand in recent months.

"The improvement in the housing market is not going to be a smooth rise, but a choppy, upward trend," said Zach Pandl, an economist at Nomura Securities International Inc. in New York, who projected sales would fall. "The real test will be if the market can weather the end of government stimulus."

Stocks dropped after the report signaled the housing recovery is likely to be uneven. The Standard & Poor's 500 Index was down 0.7 percent to 1,053.61 at 10:24 a.m. in New York. Treasury securities rose.

Existing home sales were forecast to rise to a 5.35 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey. Estimates ranged from 5.1 million to 5.55 million, after a 5.24 million rate in July.

Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Another report showed the number of Americans seeking unemployment benefits dropped last week to the lowest level in two months, signaling the labor market is mending. Jobless claims fell to 530,000 from 551,000 the prior week, according to figures from the Labor Department.

Purchases of existing homes were up 3.4 percent compared with a year earlier. The median price decreased to $177,700 from $203,200 a year ago.

The number of unsold homes on the market dropped 11 percent to 3.6 million in August. At the current sales pace, it would take 8.5 months to sell those houses, the fewest since April 2007, compared with 9.3 months at the end of the prior month.

A seven months' supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun said in recent months.

The market was "close to a self-sustaining recovery" where home values stabilize or start increasing, Yun said in a press conference. The drop is sales runs counter to figures on pending purchases and signal that low appraisals and slow underwriting remain obstacles to sustained gains, Yun said.

Pending sales are considered a leading indicator because they are tabulated when a contract is signed. Figures on purchases of existing homes represent closings, which may take place a month or two later.

Today's report showed sales of existing single-family homes fell 2.8 percent to an annual rate of 4.48 million. Sales of condominiums and co-operatives decreased 1.6 percent to a 620,000 rate.

Purchases decreased in three of four regions.

The Commerce Department may report tomorrow that purchases of new houses rose in August to the highest level in 12 months, according to a Bloomberg survey.

Federal Reserve policy makers yesterday maintained they will keep the benchmark lending rate near zero "for an extended period," while noting that the economy and housing had strengthened. They also said they will slow central bank purchases of mortgage debt and extend the program through the first quarter of 2010.

The Obama administration's $8,000 tax credit for first- time buyers, which is due to expire at the end of November, combined with the plunge in prices as foreclosures climbed, have helped lift sales this year. The Realtors' group and National Association of Home Builders have lobbied to extend the credit on concern demand will wane after it lapses.

Treasury Secretary Timothy Geithner told reporters on Sept. 17 that the administration would take a "careful look" at extending the credit and called signs of stabilization in the U.S. housing market "very encouraging."

Growing demand has prompted builders such as KB Home to get back to work. Housing starts rose to a nine-month high in August, the Commerce Department reported last week, indicating residential construction may soon add to growth after subtracting from gross domestic product since 2006.

Prices, which most economists forecast would be the last component of the market to turn, have begun to improve. The Federal Housing Finance Agency's home-price index for purchases was up 1.1 percent in the three months through July, the best performance since early 2006.

The recent increases may also be contributing to the rise in sales as buyers who had been waiting for prices to turn jump back into the market, economists said.

"We're seeing a firming of prices in a number of markets, not all," Eli Broad, founder of Los Angeles-based homebuilder KB Home, said yesterday in an interview with Bloomberg Television. "I think we have bottomed out in many markets."