U.S. Economy: Existing Home Sales Drop, Supply Climbs (Update1)

By Shobhana Chandra

March 23 (Bloomberg) -- Sales of existing U.S. homes fell in February for a third month, and the number of properties on the market climbed by the most in almost two years, casting a pall over the prospects for a recovery.

Purchases dropped 0.6 percent to a 5.02 million annual rate, the lowest level in eight months, figures from the National Association of Realtors showed today in Washington. There were 3.59 million houses for sale, a 312,000 increase from January that marked the biggest gain since April 2008.

“The housing market is trying to heal, but it’s still choking on inventory,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York.

The figures showed the extension and expansion of a federal tax credit that helped stabilize housing in 2009 has yet to spark sales this year. Treasury Secretary Timothy F. Geithner today said housing and the economy remain damaged, and that it will take a “a long time” to repair the harm as the administration takes steps to overhaul industry financing and regulation.

The Standard & Poor’s Supercomposite Homebuilder index rebounded from earlier losses, rising 0.7 percent at 4:07 p.m. in New York. The broader S&P 500 Index also increased 0.7 percent, to 1,174.17, its highest close since Sept. 26, 2008.

The loss of 8.4 million jobs since the recession began in December 2007 indicates home sales will be slow to strengthen. Home Depot Inc. is among companies cutting prices to boost sales as unemployment, foreclosures and credit restrictions hurt demand.

Jobs Needed

“It’s a fragile recovery” in housing, said Scott Brown, chief economist at Raymond James & Associates, in St. Petersburg, Florida. “We ultimately need to see job growth to get a sustainable rebound.”

Existing home sales were forecast to fall to a 5 million annual rate, according to the median estimate of 74 economists in a Bloomberg News survey. Projections ranged from 4.75 million to 5.2 million, after an initially reported 5.05 million rate in January.

The median price of a previously owned house decreased 1.8 percent to $165,100 from $168,200 a year ago, today’s report showed. Purchases climbed 7.9 percent compared with a year earlier prior to adjusting for seasonal patterns.

The number of homes on the market jumped 9.5 percent, pushing the time it would take to sell all properties at the current sales pace up to 8.6 months from 7.8 months at the end of January.

‘Unusual,’ ‘Discomforting’

The increase in supply last month was “unusual” and “discomforting,” Lawrence Yun, the Realtors’ chief economist, said in a news conference. The jump may be caused by more distressed properties coming on the market, particularly condominiums, and by trade-up buyers who are now putting their houses up for sale before purchasing another property, he said.

If inventories exceed a 10-months’ supply, it would lead to larger price declines and signal the housing slump was not over, he said.

The report showed sales of existing single-family homes decreased 1.4 percent to an annual rate of 4.37 million, while inventory climbed 6.4 percent. Sales of condos and co-ops increased 4.8 percent to a 650,000 rate and supply jumped by 28 percent.

The Obama administration in November extended a tax credit for first-time buyers due to expire at the end of that month and expanded it to include some current owners. The extension covers closings through June as long as contracts are signed by the end of April.

Boost from Credit

The boost from the credit will probably not be visible in the data until May or June, just before the incentive ends, said NAR’s Yun, citing the experience in the months just before the original November expiration.

“That process of repair is going to take a long time,” Geithner said today in testimony before the House Financial Services Committee. He said the Treasury Department and the Department of Housing and Urban Development will issue a request for comment by April 15 on how to overhaul the U.S. housing- finance system and its regulatory structure.

Sustained job gains remain the missing ingredient in promoting a rebound in housing. The unemployment rate, which reached a 26-year high of 10.1 percent in October, is projected to end the year at 9.5 percent, according to the median estimate of economists surveyed by Bloomberg this month.

Home Depot, the largest U.S. home-improvement retailer, plans to cut prices on some plants and patio furniture in March and April to help meet its goal of increasing annual sales for the first time in five years. Executives said unemployment, housing foreclosures and credit restrictions are crimping sales.

“We are looking to continue to drive our traffic in the stores,” Craig Menear, executive vice president of merchandising, said in a telephone interview last week from Atlanta, where Home Depot is based. “Things are still difficult out there for customers.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: March 23, 2010 16:09 EDT