WASHINGTON (AP) — The number of people who bought
previously occupied homes fell in July for the third time in four
months. This year is on pace to be the worst in 14 years for home sales,
as more Americans worry that the economy could slip back into another
recession.
Home sales fell 3.5 percent last month to a seasonally
adjusted annual rate of 4.67 million homes, the National Association of
Realtors said Thursday. That’s far below the 6 million that economists
say must be sold to sustain a healthy housing market.
The dismal
report on home sales contributed to a rough day on Wall Street. Stocks
plummeted in midday trading on fears that the global economy is slowing.
The Dow Jones industrial average fell more than 400 points within the
first hour of trading.
Many people are reluctant to purchase a
home two years after the recession officially ended. Sales are lagging
behind last year’s 4.91 million sold — the weakest in 13 years.
Bigger
down payments, tougher lending rules, high debt and a shortage of
desirable starter homes have kept many would-be buyers away. Even people
with good credit and enough money for a down payment are holding off
because they are worried home prices will keep falling.
First-time
homebuyers made up just 32 percent of sales. First-time buyers are
critical to strong housing markets and normally make up about half of
all sales. Their purchases of low and moderately priced homes also allow
sellers to move up to pricier homes.
The weak data show "the
housing market will not save the U.S. economy," said Paul Dales, senior
U.S. economist at Capital Economics.
Since the housing boom went
bust in 2006, sales have fallen in four of the past five years.
Declining home prices and super-low mortgage rates haven’t been enough
to boost sales this year.
The average rate on a 30-year fixed mortgage fell to 4.15 percent this week — the lowest level on records
dating back to 1971.
Some
sales are falling apart at the last minute. At least 16 percent of
deals were canceled ahead of closings last month. That’s four times the
number in May and the highest level since such records began being kept
more than a year ago. A sale isn’t final until a mortgage is closed.
Buyers have canceled purchases after appraisals showed that the homes were worth less than the buyers’
initial bids.
"Buyers
are worried about falling house prices, the job outlook, the stock
market and gridlock in Washington," said Patrick Newport, U.S. economist
at IHS Global Insight.
Sales were also hampered in the West by
new maximum loan limits by government-controlled mortgage buyers Fannie
Mae and Freddie Mac. On Oct. 1, the maximum loan in high-cost areas will
fall from $729,750 to at least $625,500 and, in some areas, to
$550,000. Some buyers will be unable to finance their purchases in
cities where homes are more expensive, such as New York, San Francisco
and Washington.
Foreclosures and short sales — when a lender
agrees to sell for less than what is owed on a mortgage — made up about
29 percent of all home sales last month. That’s up from about 10 percent
in past years. And a wave of foreclosures are being held up, either by
backlogged courts or lenders awaiting state and federal probes into
troubled foreclosure practices.
Investors have targeted
foreclosures and other deeply discounted properties. Their purchases
accounted for 18 percent of sales in July.
The median sales price
fell in July to $174,000, according to the Realtors’ group. June’s large
jump in sales prices was attributed to missing data that had not been
collected from Phoenix, which has been hit hard by foreclosures and
dropping prices.
Most economists say home prices will keep
falling, by at least 5 percent, through the rest of the year. Many
forecasts don’t anticipate a rebound in prices until at least 2013.
Sales
were uneven across the country. They rose 2.7 percent in the Northeast
and 1 percent in the Midwest. They fell 1.6 percent in the South and
12.6 percent in the West.
The glut of unsold homes declined
slightly in July to 3.65 million homes. At last month’s sales pace, it
would take 9.4 months to clear those homes. Analysts say a healthy
supply can be cleared in six months.
Copyright 2011 The Associated Press.