Sales of previously owned homes in the US fell in May to the lowest in almost four years, reinforcing concerns about a protracted housing slump.

Sales of previously owned homes in the US fell in May to the lowest in almost four years, reinforcing concerns about a protracted housing slump.

Purchases last month declined 0.3 per cent to an annual rate of 5.99 million, the lowest since June 2003, from a revised 6.01 million in April, the National Association of Realtors said yesterday in Washington. The supply of unsold homes jumped to the highest in almost 15 years.

Weakening demand for existing homes, along with a decline in construction starts on new homes reported last week, make the housing market the biggest threat to economic growth, economists said.

An increase in mortgage rates this month will further discourage buyers, leaving a glut of properties on the market.

‘We’re seeing a little more deterioration going on,’ said Jonathan Basile, an economist at Credit Suisse Holdings in New York, whose firm forecast sales at a 5.9 million rate. ‘What’s even more striking in this report is the supply numbers continue to go higher and that suggests downward pressure in prices going forward.’

Resales were forecast to fall 0.3 per cent to a 5.97 million annual rate from a previously reported 5.99 million in April according to the median forecast of 61 economists in a Bloomberg News survey. Estimates ranged from 5.75 million to 6.15 million.

Existing home sales averaged 6.51 million last year, lower than the 7.07 million average for 2005. Sales last month were down 10.3 per cent compared with a year earlier.

The supply of homes for sale rose 5 per cent to 4.43 million. At the current sales pace, that represented 8.9 months’ worth, the highest since June 1992 and up from 8.4 months’ worth at the end of the prior month.

The median price of an existing home fell 2.1 per cent last month from a year ago to US$223,700, the 10th consecutive month of year-over-year declines, the Realtors group said.

Rising defaults among subprime mortgage borrowers, people with poor or scant credit histories, are hampering a recovery in housing. At the same time, mortgage rates near an 11-month high make borrowing more expensive, even for those with good credit.

Source: The Business Times, 26 June 2007