Existing Home Sales Drop

By JEFF BATER And DARRELL A. HUGHES
Wall Street Journal
June 22,2010
Sales of previously owned homes in the U.S. slipped in May –– after increasing two consecutive months –– despite the influence of a fading government tax credit.

Home resales decreased by 2.2%, to a 5.66 million annual rate, the National Association of Realtors said Tuesday. Inventories slipped and prices rose.

The outlook isn't looking rosy for homebuilders after the stocks have had a big speculative run, with the housing market still very much not out of the woods. Economists surveyed by Dow Jones Newswires expected existing-home sales in May to climb by 5.0%, to a rate of 6.06 million.

Although the tax credit ended April 30 for contract signings on homes, buyers have until June 30 to close. Existing-home sales data are based on closings. New-home sales data are reported at contract signings. The government reported last week May home construction tumbled, and new-home sales, due to be reported Wednesday, are forecast to plunge.

Year over year, existing-home sales rose 19.2% despite fears about making big purchases amid high U.S. unemployment. Aside from tax relief, borrowing costs are historically low. The average 30-year mortgage rate was 4.89% in May, down from 5.10% in April, according to Freddie Mac.

Last week, the Senate voted to add an extension of the closing period during which home buyers can still qualify for a tax credit. The period would be extended from June 30 to Sept. 30 on contracts entered into before the end of April under the change. The legislation, however, remains under consideration by Congress.

"However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales," said NAR economist Lawrence Yun said.

Regionally, May sales decreased 18.3% in the Northeast and were unchanged in the Midwest. Sales rose 0.5% in the South and 4.9 in the West.