WASHINGTON, DC - Signs are emerging that the U.S. housing market's long slump is likely to continue through the summer, and may not recover for at least another year. The latest report, the National Association of Realtors' index of pending home sales, slipped by 4.7 percent in May to the third-lowest reading on record. The decline "suggests we are not out of the woods by any means," said the trade group's chief economist, Lawrence Yun.
The bad news came as the regulator for Fannie Mae and Freddie Mac sought to reassure investors that an accounting rule change wouldn't force the government-chartered mortgage finance companies to raise tens of billions in capital to offset losses.
With more negative data about the housing market continuing to emerge as the economy weakens and job losses accelerate, economists are reluctant to say the worst is over. "Homes are much more affordable, but they'll probably be even more affordable in six months' to 12 months' time, so it makes people reluctant to jump in," Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Mass., said in an interview with Bloomberg Television.
While home sales are likely to fall to their lowest point late this year or early next year, any recovery is likely to be weak through at least 2010, said Mark Vitner, senior economist with Wachovia Corp. Making matters worse, rates on 30-year mortgages have been above 6 percent since late May, leading to a steep decline in new applications.
The Realtors' seasonally adjusted index of pending sales for existing homes fell 4.7 percent to 84.7 from an upwardly revised April reading of 88.9. The index was 14 percent below year-ago levels. Sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Wall Street economists surveyed by Thomson/IFR had predicted the index would come in at 87. The index, which sank to a record low of 83 in March, stood at 98.5 in May 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.
The pending home resales report is considered a leading indicator because it tracks contract signings. Closings, which typically occur a month or two later, are tallied in a separate report from the Realtors on actual home resales. Pending sales fell around the United States, sinking the most in the South and the least in the West. Despite the negative numbers, "the worst of the hemorrhaging is behind us" and a modest recovery is likely to take shape next year, said Bernard Baumohl, managing director of the Economic Outlook Group. Homeowners shouldn't get too excited, though, as Baumohl predicts median prices will show year-over-year gains of no more than 6 percent by next year.
By the Realtors' measurement, prices nationwide were down 6.3 percent in May, but are falling faster in big cities. The Standard & Poor's/Case-Shiller home price index of 20 cities fell by 15.3 percent in April compared with a year ago, dropping prices to their lowest levels since August 2004. Meantime, shares of mortgage financiers Fannie Mae and Freddie Mac stabilized yesterday, a day after plunging to early-1990s levels on worries they might need billions of dollars in new capital if a new accounting rule is put into effect.
Fannie Mae shares gained $1.88, or 11.9 percent, to close at $17.62 yesterday, a day after plunging more than 16 percent. Freddie Mac shares rose $1.55, or 13 percent, to $13.46 after sliding nearly 18 percent Monday.
The federal regulator for the two companies, Office of Federal Housing Enterprise Oversight Director James Lockhart, said in a CNBC interview the accounting changes "would really have no impact on the risk of these firms." It would "make no sense" to require extra capital due to accounting changes, he said. Whil
Source: BaltimoreSun.com