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Existing home sales stay at just short of record low

Home foreclosures and rate of homes entering the process at record highs in Q4

(WASHINGTON) Industry data released yesterday show January pending US home sales were below analysts’ expectations and remained at the second-lowest reading on record.

The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes held at 85.9, the same reading as December and just short of a revised record low of 85.8 in August, at the start of the worldwide credit squeeze. The reading was 19.6 per cent below year-ago levels.

Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.2. Typically there is a month or two lag between when a buyer signs a home sales contract and the closing of the deal. Sales completed last month and into this month should be reflected in the January reading.

An index reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Lawrence Yun, the trade group’s chief economist, said in a statement that the reading is a sign the housing market is stabilising.

‘Our members are telling us there’s been a pick-up in shopping activity,’ Mr Yun said. ‘Our hope is that the increased traffic of buyers looking at homes will translate soon into more contract offers.’

The Realtors group, which is more optimistic about the housing market than most economists, projects home sales will start to rise during the second half of the year.

It forecast yesterday that total existing home sales will fall 4.8 per cent to 5.4 million this year, then rise to 5.6 million in 2009.

The trade group projected median US home prices – the point at which half of the homes sell for less and half sell for more – will fall 1.2 per cent to US$216,300 before rising to as much as US$2 23,800 in 2009.

Meanwhile, US home foreclosures and the rate of homes entering the foreclosure process rose to record highs in the fourth quarter led by failing sub-prime loans, the Mortgage Bankers Association said yesterday.

The rate of failing loans swelled across most mortgage types but was led by a growing wave of subprime borrowers unable to make payments, the trade group said in its delinquency and foreclosure survey.

A record 0.83 per cent of US loans were entering the foreclosure process in the last three months of 2007 compared to 0.54 per cent in the same time a year earlier. The US mortgage delinquency rate of 5.82 per cent was the highest since 1985 and up from the 4.95 per cent seen in the fourth quarter of 2006.

In another development, Federal Reserve Bank of Boston president Eric Rosengren yesterday called for aggressive action on credit market problems and falling home prices that are posing a risk to the US economy.

‘There may be a significant cost to delaying needed actions that could restore confidence in the ratings process, the pricing of financial assets, and the impact of declining home prices,’ Mr Rosengren said.

Mr Rosengren said that problems that have roiled Wall Street since summer ‘are beginning to significantly affect Main Street’, with falling home prices a key element. ‘As long as housing prices continue to fall, the decline increases the risks to borrowers, lenders, markets and the economy,’ he said.

Hopes that the United States could refinance its way out of the sub-prime mortgage crisis are fading, Mr Rosengren said.

Source: AP, Reuters (Business Times 7 Mar 08)

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