U.S. Existing Home Sales Rise on Record Price Slump (Update1)

Jan. 26 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.

Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.

“You have to put it in the context of an even steeper decline for the previous month,” said David Sloan, a senior economist at 4Cast Inc. in New York, who had the highest projection in the Bloomberg News survey. “The net trend is still negative. It does seem that some cheap prices are attracting buyers. I don’t think it’s a clear sign of a revival in the housing market. The housing market is very weak.”

The housing slump at the center of the global credit crisis and economic downturn is likely to persist well into 2009, hurting companies such as Home Depot Inc. President Barack Obama has pledged to stem foreclosures and boost job creation to break the longest recession in a quarter century.

The index of leading economic indicators unexpectedly increased in December as the money supply expanded, a report from the Conference Board, a New York-based research group, showed today. The 0.3 percent increase was the first gain in six months and masked signs of a worsening recession. The index points to the direction of the economy over the next three to six months.

Better Than Forecast

Resales were forecast to fall to a 4.4 million annual rate, according to the median estimate of 70 economists in a Bloomberg News survey. Estimates ranged from 4.2 million to 4.6 million.

Sales were down 3.5 percent compared with a year earlier. Resales averaged 4.91 million in 2008, down 13 percent from 2007 and the fewest in 11 years.

Home Depot, the world’s largest home-improvement retailer, announced today it will cut 7,000 associate jobs and will freeze the salaries of all its officers as the housing slump persists.

The number of previously owned unsold homes on the market at the end of December represented 9.3 months’ worth at the current sales pace, down from 11.2 months’ at the end of the prior month.

The median price of an existing home decreased 9.3 in 2008 from the prior year, also the biggest decline since records began and the biggest since the Great Depression.

Single-Family Homes

Resales of single-family homes increased 7 percent to an annual rate of 4.26 million. Sales of condos and co-ops rose 2.1 percent to a 480,000 rate.

The rebound last month was led by a distressed-property related jump in the West, including California, Nevada and Arizona, the NAR said. Sales of distressed properties accounted for about 45 percent of all sales last month.

Home sales have been falling since 2005 and prices peaked in 2006. Property values are down by about 23 percent, according to the S&P/Case-Shiller index covering 20 metropolitan areas.

President Obama last week pressed congressional leaders to reach a consensus on an $825 billion stimulus plan that would generate job growth, cut taxes and spur spending on infrastructure, saying, “it appears we are on target” to get legislation passed by mid-February.

Obama Plan

Obama will use up to $100 billion of the remaining half of the $700 billion financial-rescue funds to ease the mortgage- foreclosure crisis, Lawrence Summers, his top economic adviser, said in a letter to lawmakers on Jan. 15.

Mounting foreclosures triggered a credit crisis which in turn has deepened the recession that began in December 2007 and shows no sign of letting up. The economy lost 2.6 million jobs last year and economists surveyed by Bloomberg forecast unemployment will rise to a 26-year high of 8.4 percent by the end of 2009.

Economists surveyed by Bloomberg forecast the economy contracted at a 5.3 percent annual pace in the fourth quarter of 2008, the most since 1982. The government will release its advance estimate on Jan. 30.

Builders

Builders are scaling back as sales slump and foreclosures mount, contributing to the economic slump.

U.S. foreclosure filings jumped 81 percent last year as more than 2.3 million properties got a default or auction notice, or were seized by lenders, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

KB Home, the fourth-largest U.S. homebuilder, on Jan. 9 reported a fourth-quarter loss exceeding analysts’ estimates and predicted more pain for the housing market this year.

“The housing industry continues to confront unprecedented downward pressure,” Chief Executive Officer Jeffrey Mezger said in a conference call. “These conditions persist nationally, with no visible signs of lessening in the near term.”

Centex Corp., the second-biggest U.S. homebuilder by sales, said last week it plans to write down up to $600 million in the fiscal third quarter as land values plummeted. Net sales fell 80 percent from a year earlier to 1,080 units, the Dallas-based company said in a preliminary earnings statement Jan. 23.

“Abrupt and sweeping changes in the economy caused unprecedented homebuyer hesitancy, which severely impacted sales early in the quarter,” Chief Executive Officer Timothy Eller said in the statement. “As housing starts dropped to record lows and unemployment rose, buyers remained firmly on the sidelines early in the quarter.”