Existing Home Sales Rise 2.4% in May, Shy of Expectations

Sales of previously owned homes in the United States rose at a slower-than-expected pace in May, an industry survey showed Tuesday, pointing to a sluggish recovery from the severe economic recession.

The National Association of Realtors said sales rose 2.4 percent to an annual rate of 4.77 million units from a downwardly revised 4.66 million pace in April. That compared to market forecasts for a 4.81 million-unit pace. However, sales increased for a second straight month in May.

A separate survey from the Federal Reserve Bank of Richmond showed a reading of manufacturing sentiment in the U.S. mid-Atlantic states rose to 6 in June from 4 in May and minus 9 in April. However, manufacturers' outlook for the next six months softened somewhat, signaling conditions remain fragile.

U.S. stock indexes trimmed gains on the data, while Treasury debt prices were unchanged.

"The housing number suggests that things are bottoming, but that's a far cry from improving. I think the markets are focused on how fast the recovery is going to be, and I think it won't be as fast as people are thinking," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

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The Realtors report showed sales remained down 3.6 percent compared to May last year. The group's chief economist, Lawrence Yun, said sales in some areas appeared to be losing momentum and blamed the slower rise in May sales to poor home value appraisals, which he said were stalling transactions.

"Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting loans," he said. "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."

Restoring stability to the housing market is seen critical to pulling the economy out of an 18-month-old recession, the longest since the Great Depression of the 1930s.

Collapsing home values and tighter access to credit are forcing U.S. households to become more frugal, a trend that could make the widely anticipated economic recovery in the second half of 2009 feeble and lacking on the jobs front.

Data on new and existing home sales have backed suggestions that the three-year housing slump was nearing a bottom, but a surge in mortgage rates and persistently high unemployment threatens this budding optimism.

Home loan rates have jumped in tandem with government yields amid speculation that massive capital injections to boost the economy by both the Federal Reserve and the government could stoke inflation pressures in the long term.

Yun said sales could actually rise in the coming months as buyers rushed to lock in mortgage rates, but cautioned that higher borrowing costs could hurt the nascent recovery.

The median national home price fell 16.8 percent, the third largest drop on record, from the same period a year ago to $173,000. Distressed properties made up 33 percent of sales, down from the 45 to 50 percent seen in recent months.

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The Realtors report showed sales of single-family homes rose 1.9 percent last month to an annual rate of 4.25 million, while multifamily units — the hardest-hit sector — surged 6.1 percent to a 520,000-unit annual pace.

The supply of unsold homes fell 3.5 percent to 3.80 million. At the current sales pace, it would take 9.6 months to clear that supply, down from 10.1 months in April. Meanwhile, key private-sector surveys from Europe indicated on Tuesday that meaningful growth was unlikely to return before next year.

The widely watched Markit Eurozone Flash Services Purchasing Managers Index (PMI) unexpectedly slipped to 44.5 in June from 44.8 in May, the first fall since February, and still well below the 50 mark separating growth from contraction.

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