June home sales rise, but prices plummet

NEW YORK (CNNMoney.com) -- Sales of existing homes disappointed again in June, coming in at a seasonally adjusted annualized rate of 4.89 million, up just 3.6% compared with May, according to a monthly report from the National Association of Realtors.

Home sales peaked in August 2005 at an annualized rate of more than 7.2 million, but sales have not surpassed the 5 million mark since last September, despite a large number of homes on the market, low mortgage rates, a tax credit for first-time homebuyers and low, low prices.

The median price for a home sold during the month was just $181,800 -- 15.4% lower than 12 months earlier. Sales were down, oh so slightly, from 12 months ago, from 4.90 million in June 2008. Mortgage rates back then were about 6.3% for a 30-year, fixed-rate mortgage loan. They stood at 5.42% last month, which was still a step up from the 4.86% rates available in May.

The sales figures were slightly higher than industry expectations. A panel of analyst forecasts compiled by Briefing.com had predicted that sales would come in at 4.84 million units.

NAR chief economist Lawrence Yun expressed hope that the industry could build upon the modest gain. "We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions," he said.

There was some reason for optimism, according to Stuart Hoffman, chief economist for PNC Financial Services (PNC, Fortune 500) in Pittsburgh. Three months of gains in a row indicates to him that, "The downturn is probably behind us. There should be a period of [market] stabilization and a creeping up of sales."

One possible problem, however, is that affordability may not continue to improve as fast as it has. Price declines are flattening out and mortgage rates are less favorable than they were.

"Mortgage rates were much lower in April and May, when many of the deals [reflected in this report] were negotiated," said Hoffman. That could mean disappointing results during the next few months as higher rates tamp down momentum.

"It's still not great, but we're no longer poised for Armageddon," said Mike Larson, a housing analyst for Weiss Research, in a prepared statement. "We're seeing sales rates steadily and gradually climb at the same time the supply of homes for sale is falling, We're also seeing the pace of home price declines ease up. None of this is great news. But it's a noticeable -- and welcome -- change from the free-fall we witnessed in 2007 and 2008."

The main culprit for the tepid report was the economy. Job losses have taken many potential homebuyers out of the market entirely and discouraged others from buying.

"Affordability improvement brought out some homebuyers," said Hoffman, "but sales are still pretty flat. A more favorable job picture and we wouldn't be swimming so hard against the tide."

Another problem, according to Yun, is that home sales are being lost as a result of new appraisal standards that recently went into effect. Too many inexperienced appraisers are using poor comparisons when evaluating homes, which can sabotage deals.

The NAR release reported that a June survey of its members found that 37% said they lost a sale as a result of appraisal problems, with seven out of 10 reporting an increased use of out-of-area appraisers.

"In many cases," Yun said, "normal homes are being compared with distressed homes sold at a discount, which often are in subpar condition. This is causing real harm to both buyers and sellers."

Larson, however, downplays this problem. "Clearly tighter appraisal standards will limit some sales, but to suggest the appraisals are not being realistic because they used distressed properties is not right. Distressed sales are a large part of the market."