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Loan delays lead to US home dip
By Lucia Mutikani |
June 24, 2010, Thursday
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Print Edition
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SALES of previously owned American homes unexpectedly fell last month, a decline economists and real estate agents pinned on delays in processing mortgage applications.
Existing home sales fell 2.2 percent to an annual rate of 5.66 million units in May, the National Association of Realtors said on Tuesday.
The drop was surprising given that pending home sales, which usually lead resales by a month or two, rose in April, and economists said they expected a pick-up in June.
Pending sales are measured at contract signing while existing sales are logged at contract closing.
"The fact that pending home sales have been trending upward suggests that perhaps closings are taking longer than expected. Still-tight lending is slowing the approval process and this may also be slowing the flow of home sales that are closing," said Celia Chan, a senior director at Moody's Analytics.
Weak home sales will contribute to a slowing in the economy's recovery from the worst recession since the 1930s that has already become evident in other data but few analysts are worried about the risk of a renewed downturn.
A government tax credit to buyers who signed a contract by the end of April and who close by the end of June has helped drive pending home sales higher.
Now that April has come and gone, pending sales are expected to drop but existing home sales had been expected to rise for a few months.
The realtors group warned that as many as 180,000 buyers might be unable to finalize their contracts by the end of this month because of delays in processing mortgages, and were at risk of losing the tax credit.
The United States Senate has been considering a proposal to extend the cut-off date to the end of September but that legislation has become mired in a debate over a separate measure.
While many economists blamed processing delays, the data did fuel some worry that demand for housing might be weaker than previously thought.
Stocks on Wall Street fell on the data, with all three main indices closing down more than 1 percent. The poor housing report and strong demand at a government auction for two-year notes sparked a rally on the US Treasury debt market.
Incentives and low mortgage rates have helped the housing market overcome a three-year slump.
Existing home sales fell 2.2 percent to an annual rate of 5.66 million units in May, the National Association of Realtors said on Tuesday.
The drop was surprising given that pending home sales, which usually lead resales by a month or two, rose in April, and economists said they expected a pick-up in June.
Pending sales are measured at contract signing while existing sales are logged at contract closing.
"The fact that pending home sales have been trending upward suggests that perhaps closings are taking longer than expected. Still-tight lending is slowing the approval process and this may also be slowing the flow of home sales that are closing," said Celia Chan, a senior director at Moody's Analytics.
Weak home sales will contribute to a slowing in the economy's recovery from the worst recession since the 1930s that has already become evident in other data but few analysts are worried about the risk of a renewed downturn.
A government tax credit to buyers who signed a contract by the end of April and who close by the end of June has helped drive pending home sales higher.
Now that April has come and gone, pending sales are expected to drop but existing home sales had been expected to rise for a few months.
The realtors group warned that as many as 180,000 buyers might be unable to finalize their contracts by the end of this month because of delays in processing mortgages, and were at risk of losing the tax credit.
The United States Senate has been considering a proposal to extend the cut-off date to the end of September but that legislation has become mired in a debate over a separate measure.
While many economists blamed processing delays, the data did fuel some worry that demand for housing might be weaker than previously thought.
Stocks on Wall Street fell on the data, with all three main indices closing down more than 1 percent. The poor housing report and strong demand at a government auction for two-year notes sparked a rally on the US Treasury debt market.
Incentives and low mortgage rates have helped the housing market overcome a three-year slump.
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