Home sales slump, but prices tick up

NEW YORK (CNNMoney.com) -- The pace of existing home sales fell to a more than four-year low in June, according to the latest reading on the state of the battered real estate market, although year-over-year price comparison showed the first uptick in nearly a year.

Sales of existing homes slowed to an annual pace of 5.75 million in June, according to the National Association of Realtors, compared with the revised 5.98 million sales pace in May.

It was the slowest pace of home sales since November 2002, as rising mortgage rates and problems in the subprime mortgage sector continue to put a squeeze on financing. Economists surveyed by Briefing.com had forecast that sales would slow to a 5.9 million pace.

"The sales weakness is broad based," said Mike Larson, a real estate analyst with Weiss Research, an independent investment research firm. He points out that the pace of sales was off in every region, ranging from a one-month 1.7 percent drop in the South to a 7.3 percent plunge in the West. "If you look at a chart, it looks like we're coming off the backside of a mountain."

But the median price of a home sold in the month edged up 0.3 percent compared to a year ago, to $230,100. It was the first time since July 2006 that there has been a gain in that closely-watched price measure. The June price jumped 3.3 percent compared to May.

Larson and other economists say the numbers suggest that some potential home sellers have pulled their homes off the market, or chosen not to list them, because of the current weakness. The inventory of homes available for sale fell 4.2 percent compared to May, despite the weak sales pace during the month.

"We're reaching the end of the spring selling season and people who can't get their price are likely to pull their houses off the market," said Larson. He said that might be giving a false lift to overall price picture in the market, since it's only measuring sales taking place in pockets of strength in an otherwise weak market.

"I'm not exactly breaking out my party hat yet," he said. "My main concern and belief is that the market will weaken further in July."

The glut of 4.2 million existing homes on the market is up more than 12 percent from a year ago, and it represents an 8.8 month supply, the same as in May, when it hit a nearly 15-year high.

"A supply between 4.5 to 6 months is a balanced market, so we're pretty out of whack here," said Mike Schenk, senior economist, Credit Union National Association. "The health of this market is driven by consumers willing to buy and financial companies willing to lend, and both those things are working against us right now."

Home sales and prices have been hurt by problems in the subprime mortgage market, and the CEO of one of the nation's leading mortgage lenders, Countrywide Financial (Charts, Fortune 500), warned Tuesday that it does not expect a rebound in housing until 2009. Schenk and Larson say they think a recovery won't take place until late 2008 at the earliest.

"We believe the slump will be longer and deeper than previously advertised," said Schenk.

Schenk and Larson point out since this report reflects sales that closed in June; it was driven by mortgage rates that were typically locked in a month or two earlier. Mortgage financing firm Freddie Mac shows the current average for a 30-year fixed rate loan at 6.73 percent, or about 8/10th of a percentage point higher than early April, making it that much more difficult for buyers to afford sellers' asking prices.

Any reluctance by sellers to enter the market is therefore being matched by caution from potential buyers. Even the Realtors see buyers not willing to jump in given current conditions.

"Although general buying conditions remain favorable for long-term home buyers, it appears some buyers are looking for more signs of stability before they have enough confidence to make an offer," said Lawrence Yun, NAR senior economist, in the group's statement.

Many of the nation's leading home builders have also seen results hurt by the slowdown in housing. Late last month, Lennar, the nation's largest home builder by revenue, reported an unexpected loss in the most recent quarter, as did KB Home (Charts, Fortune 500), the nations' No. 5 builder. Two other builders larger than KB Home, Centex (Charts, Fortune 500) and Pulte Homes (Charts, Fortune 500), have also reported losses, and No 2 D.R. Horton (Charts, Fortune 500) is forecast to post a loss in its next report.