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US home sales tumble as prices surge to record high
US HOME sales fell more than expected in June as a persistent shortage of properties pushed prices to a record high, indicating the housing market was struggling to regain speed since hitting a soft patch last year.
Housing and manufacturing are the main areas of weakness in the economy. They are offsetting strong consumer spending, resulting in a slowdown in economic activity that, together with trade tensions and tepid global growth, could see the Federal Reserve cutting interest rates next Wednesday for the first time in a decade.
The National Association of Realtors (NAR) said on Tuesday that existing home sales dropped 1.7 per cent to a seasonally adjusted annual rate of 5.27 million units last month.
The median existing house price increased 4.3 per cent from a year ago to an all-time high of US$285,700 in June.
"Meagre inventory levels, especially in the entry-level segment, and still-rising prices continue to limit the selection of homes available to more budget-conscious buyers," said Matthew Speakman, an economist at Zillow.
Economists polled by Reuters had forecast existing home sales slipping 0.2 per cent to a rate of 5.33 million units in June.
Existing home sales, which make up about 90 per cent of home sales, decreased 2.2 per cent from a year ago. That was the 16th straight year-on-year decline in home sales.
The weakness in housing comes despite cheaper mortgage rates and the lowest unemployment rate in nearly 50 years.
Supply has continued to lag, especially in the lower-price segment of the housing market because of land and labour shortages, as well as expensive building materials. The government reported last week that permits for future home construction dropped to a two-year low in June.
According to the NAR, there was a 19 per cent drop from a year earlier in sales of houses priced at US$100,000 and below. The Realtors group said there was strong demand in this market segment, but not enough homes for sale.
The NAR also said last year's revamp of the US tax code, which reduced the amount of mortgage interest payments homeowners could deduct, was weighing on demand for homes priced at US$1 million and above.
The 30-year fixed mortgage rate has dropped to an average of 3.81 per cent from a more than seven-year peak of 4.94 per cent in November, according to data from mortgage finance agency Freddie Mac.
Last month, existing home sales rose in the North-east and Mid-west. They tumbled in the populous South and in the West.
June's drop in existing homes sales likely means less in brokers' commissions, which suggests that housing probably remained a drag on gross domestic product in the second quarter. Spending on homebuilding contracted in the first quarter, the fifth straight quarterly decline.
The Atlanta Fed is forecasting GDP rising at a 1.6 per cent annualised rate in the second quarter.
The economy grew at a 3.1 per cent rate in the January-March period. The government will publish it snapshot of second-quarter GDP on Friday.
There were 1.93 million previously owned homes on the market in June, up from 1.91 million in May and unchanged from a year ago.
The tight inventory boosted house price inflation, which had been slowing after a jump in mortgage rates last year dampened demand for housing.
Economists, however, do not believe the re-acceleration in home prices reported by the NAR is a true picture of home values.
In a separate report on Tuesday, the Federal Housing Finance Agency (FHFA) said its house price index rose a seasonally adjusted 5 per cent in May from a year ago, slowing from an increase of 5.2 per cent in April.
"We believe that the FHFA index is the more reliable indicator because the price measures reported in the existing home sales report don't control for changes in the mix of sales," said Daniel Silver, an economist at JPMorgan in New York.
"The FHFA index continues to show that the pace of appreciation has been cooling lately, which is a message consistent with several other related measures."
Last month, houses for sale typically stayed on the market for 27 days, up from 26 days in May and a year ago.
Fifty-six per cent of homes sold in June were on the market for less than a month. At June's sales pace, it would take 4.4 months to exhaust the current inventory, up from 4.3 months in May.
A six-to-seven-month supply is viewed as a healthy balance between supply and demand. First-time buyers accounted for 35 per cent of sales last month, up from 32 per cent in May and 31 per cent a year ago.
Economists and realtors say a 40 per cent share of first-time buyers is needed for a robust housing market. REUTERS