Home-Sales Surge May Not Reflect Subprime Woes
By MICHAEL CORKERY
March 24, 2007
Sales of previously occupied homes rose unexpectedly last month, but economists said the increase was partly driven by unseasonably warm weather and didn't fully reflect the current turmoil in the subprime mortgage market.
The recent surge in defaults on subprime mortgages, those for people with weaker credit records, has forced lenders to tighten their standards. That is expected to eliminate many potential home buyers, damping sales in the months ahead.
The National Association of Realtors said sales of existing homes increased 3.9% in February from a month earlier to a seasonally adjusted annual rate of 6.69 million units. That sales rate was 3.6% below the year-earlier level.
The latest data reflect completions of home sales in February that resulted from purchase agreements that were mostly signed in December and early January, when unusually warm weather in the Northeast may have enticed more people to shop for homes. The Northeast led the nation with a 14.2% surge in sales in February from a month earlier, while sales increased 1.6% in the South and 3.9% in the Midwest. They were unchanged in the West. Economists also cautioned the unusually warm weather may have confounded seasonal adjustments meant to compensate for lower activity in winter.
"This was purely a fluke number," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc. "You can bet dollars to doughnuts that next month this number is going to come right back down."
The national median home price dropped to $212,800, a 1.3% decline from a year earlier. Without a downward revision in the year-earlier median, the decline would have been 2.1%, said Thomas Lawler, a housing economist in Vienna, Va. Mr. Lawler said it was the second month in a row that the NAR has revised the year-earlier median price downward. NAR chief economist David Lereah said such revisions are automated and "happen all the time."
Some analysts say price cuts and low interest rates are bringing buyers back into the market, which helped boost sales in February and in the previous month. But the outlook for the housing recovery is clouded by the meltdown in the subprime mortgage market that is beginning to stymie many borrowers with poor credit from obtaining financing.
Mr. Lereah predicted Friday that credit tightening will reduce home sales by 100,000 to 250,000 annually over the next two years. Most economists say this winnowing of home buyers is only now emerging and could drive down home sales in the coming months.
"Our view had been that sales were going to turn around in middle of '07," said Patrick Newport, economist at consultancy Global Insight. "But I don't think that is going to happen because a segment of the home-buying market is not going to be able to borrow money."
The inventory of homes for sale rose 5.9% to 3.75 million at the end of February, which represents a 6.7-month supply at the current sales pace. That's down from a 7.4-month supply in October.
Economists say the number of homes on the market typically increases in February as the peak spring selling season kicks off. In some markets, rising foreclosures threaten to worsen the glut of homes offered for sale. Credit Suisse analyst Ivy Zelman estimates that foreclosures could add as much as 20% to the current inventory of existing homes.
By MICHAEL CORKERY
March 24, 2007
Sales of previously occupied homes rose unexpectedly last month, but economists said the increase was partly driven by unseasonably warm weather and didn't fully reflect the current turmoil in the subprime mortgage market.
The recent surge in defaults on subprime mortgages, those for people with weaker credit records, has forced lenders to tighten their standards. That is expected to eliminate many potential home buyers, damping sales in the months ahead.
The National Association of Realtors said sales of existing homes increased 3.9% in February from a month earlier to a seasonally adjusted annual rate of 6.69 million units. That sales rate was 3.6% below the year-earlier level.
The latest data reflect completions of home sales in February that resulted from purchase agreements that were mostly signed in December and early January, when unusually warm weather in the Northeast may have enticed more people to shop for homes. The Northeast led the nation with a 14.2% surge in sales in February from a month earlier, while sales increased 1.6% in the South and 3.9% in the Midwest. They were unchanged in the West. Economists also cautioned the unusually warm weather may have confounded seasonal adjustments meant to compensate for lower activity in winter.
"This was purely a fluke number," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc. "You can bet dollars to doughnuts that next month this number is going to come right back down."
The national median home price dropped to $212,800, a 1.3% decline from a year earlier. Without a downward revision in the year-earlier median, the decline would have been 2.1%, said Thomas Lawler, a housing economist in Vienna, Va. Mr. Lawler said it was the second month in a row that the NAR has revised the year-earlier median price downward. NAR chief economist David Lereah said such revisions are automated and "happen all the time."
Some analysts say price cuts and low interest rates are bringing buyers back into the market, which helped boost sales in February and in the previous month. But the outlook for the housing recovery is clouded by the meltdown in the subprime mortgage market that is beginning to stymie many borrowers with poor credit from obtaining financing.
Mr. Lereah predicted Friday that credit tightening will reduce home sales by 100,000 to 250,000 annually over the next two years. Most economists say this winnowing of home buyers is only now emerging and could drive down home sales in the coming months.
"Our view had been that sales were going to turn around in middle of '07," said Patrick Newport, economist at consultancy Global Insight. "But I don't think that is going to happen because a segment of the home-buying market is not going to be able to borrow money."
The inventory of homes for sale rose 5.9% to 3.75 million at the end of February, which represents a 6.7-month supply at the current sales pace. That's down from a 7.4-month supply in October.
Economists say the number of homes on the market typically increases in February as the peak spring selling season kicks off. In some markets, rising foreclosures threaten to worsen the glut of homes offered for sale. Credit Suisse analyst Ivy Zelman estimates that foreclosures could add as much as 20% to the current inventory of existing homes.
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