WASHINGTON — Sales of previously owned homes dipped 2.2 percent in May, even though buyers could receive government tax credits.
Last month’s sales fell from April to a seasonally adjusted annual rate of 5.66 million, the National Association of Realtors said Tuesday. Analysts who had expected sales to rise expressed concern that the real-estate market could tumble once the benefit of the federal tax incentives is gone entirely, starting next month.
Stocks slid Tuesday after the home-sales report was released. The Dow Jones industrial average fell about 148 points to 10,293.52.
The Arkansas Realtors Association has not yet reported May sales for the whole state. But sales in four central Arkansas counties - Pulaski, Faulkner, Saline and Lonoke - were up 18 percent in May, said Ethan Nobles, spokesman for the state association.
Sales in Arkansas for previously owned and newly built homes were up 25 percent in April, the jump attributed to the federal tax credit.
Nationally, nearly a third of sales in May were from foreclosures or other distressed properties. That means home prices could soon be heading down after stabilizing over the past year.
The report is “a worrisome sign for what will occur in July and thereafter when the effect of the tax credit is behind us,” said Joshua Shapiro, chief U.S. economist at MFR Inc., an economic consulting firm in New York.
Still, some economists don’t expect the housing market to be weak enough to pull the economy back into recession. They anticipate that home sales will dip over the summer, then start growing by fall as the 9.7 percent unemployment rate begins to decline.
Sales “will be pretty soft for the next few months,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla. “Ultimately, you’re going to need job growth to see a sustainable recovery in housing.”
Despite the April-to-May dip, existing home sales on a seasonally adjusted annual rate were up 19.2 percent in May, compared with a May 2009 sales rate of 4.75 million homes.
Existing-home sales have climbed 25 percent from the 4.5 million annual rate hit in January 2009 - the lowest level of the recession. But they’re still down 22 percent from the peak rate of 7.25 million in September 2005.
The report counts home sales once a deal closes. So federal tax credits of up to $8,000 for first-time buyers and up to $6,500 for existing homeowners helped prop up sales in May. The deadline to get a signed sales contract and qualify was April 30. Buyers must close their purchases by June 30.
The tax credits were expected to lift sales in May and June. Lawrence Yun, the Realtors group’s chief economist, said delays in the mortgage-lending process put about 180,000 potential buyers in limbo. They are unlikely to qualify by the June 30 deadline. The trade group is pushing Congress to extend the deadline for closing a sale until Sept. 30.
Real estate agents report a decline in foot traffic, meaning sales could worsen in the coming months.
“The urgency just isn’t there,” said Pat Lashinksky, CEO of ZipRealty Inc., which has agents in 22 states.
Floyd Scott, broker-owner of Century 21 Arizona-Foothills in Phoenix, said his office had about 25 percent fewer signed contracts to buy homes in May than it did a month earlier.
“The tax credit stopped and boy, I’ll tell you, it was like, ‘Wait a minute. Is the phone still working?’” Scott said.
Another troubling sign is the number of foreclosures and short sales. Short sales occur when lenders let borrowers sell a home for less than they owe on their mortgages. Together, foreclosures and short sales made up 31 percent of sales in May. And those numbers could rise because the government’s efforts to help troubled homeowners keep their homes have had only modest success.
More than a third of the 1.2 million borrowers who enrolled in the Obama administration’s $75 billion mortgage modification program have dropped out. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.
The decline in May home sales reflected a drop of more than 18 percent in the Northeast. Sales were unchanged in the Midwest but rose nearly 5 percent in the West and 0.5 percent in the South.
The inventory of unsold homes on the market dropped 3.4 percent to 3.9 million.That’s an 8.3-month supply at the current sales pace, compared with a healthy level of about six months.
First-time buyers made up 46 percent of sales. The median sales price in May was $179,600, meaning half the sales prices were higher and half were lower. That was up 2.7 percent from a year earlier.
While the rise in home prices is encouraging, analysts don’t see that lasting. They say the vast number of unsold homes on the market and the anticipated rise in foreclosure sales will drive prices down over the next few months.
“Prices will hit the low point next year,” said IHS Global Insight economist Patrick Newport.
Information for this article was contributed by Alan Zibel and Alex Veiga of The Associated Press, David Smith of the Arkansas Democrat-Gazette and Shobhana Chandra of Bloomberg News.
Front Section, Pages 1 on 06/23/2010