Existing home sales fall unexpectedly

One possible reason for home sales' decline is a rising backlog of applications, the National Association of Realtors said.

Phil Coale/AP
A house is shown for sale in Tallahassee, Fla. Existing home sales fell 2.7 percent in August, according to a new report.

Sales of existing homes fell unexpectedly in August, after strong gains in July. Annualized sales totaled 5.1 million homes for August, down 2.7 percent from July but still 3.4 percent ahead of the level a year ago.

The median sales price of existing homes also declined from $181,500 in July to $177,700 in August, according to a National Association of Realtors (NAR) report released Thursday.

In a more encouraging sign, the inventory of unsold homes fell to its lowest level in more than a year with 8.5 months of supply on the market. The level had been as high as 11 months late last year.

One potential factor behind the disappointing sales figures may be the pending expiration of a tax credit for first-time homebuyers. A rising number of buyers are signing contracts, clogging the system and helping to lengthen the closing process, NAR economist Lawrence Yun said in a release. "But the decline demonstrates we can’t take a housing rebound for granted.”

Outside analysts downplayed the one-month decline. "We suspect it is just a temporary blip in the improving trend rather than a sign of renewed weakness," wrote Paul Dales, an economist at Capital Economics, in an analysis.

This year's housing recovery has been fueled by low mortgage rates and falling home prices. One of the big uncertainties hanging over the market is what happens once the tax credit expires Nov. 30.

“There are some homebuyers who are accelerating their decisionmaking process in response to what they may perceive as being short-lived incentives, like the homebuyer tax credit," said Sam Chandan, president and chief economist of Real Estate Econometrics. "But probably the more important [factor] is the low mortgage rates.”

The average rate for a 30-year conventional, fixed-rate mortgage fell to 5.19 percent in August from 5.22 percent in July, according to Freddie Mac. The rate was 6.48 percent in August 2008.

The bottoming out of home prices is another factor in the recent rise in sales.

“Buyers do see that a floor is establishing in the housing market,” said Peter Morici, a professor of business at the University of Maryland and former chief economist at the International Trade Commission.

The Federal Reserve’s announcement Wednesday that it would stretch out its acquisition of mortgage-backed securities is a sign that the Fed doesn’t feel need to continue supporting home prices by keeping interest rates low, Mr. Morici said.

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