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Wed, Jan 27, 2010 - Page 10 News List

US home sales rose last year as prices plunged 12%

WEAKNESS FEARSSome analysts question whether the US housing market can remain stable without the billions of dollars in government spending that are propping it up


A sign is pictured in the front yard of a home for sale in Pleasant Prairie, Wisconsin, on Monday.


Sales of previously occupied US homes rose last year for the first time in four years, despite a slump last month that was due to a tax credit that led many buyers to complete sales earlier.

Still, prices plunged more than 12 percent last year — the sharpest fall since the Great Depression of the 1930s. The price drop for last year — to a median of US$173,500 — showed the housing market remains too weak to help fuel a sustained economic recovery.

Concerns remain that home sales will weaken after March 31, when the Federal Reserve is set to end its program to buy mortgage securities to keep home loan rates low.

Once that program ends, mortgage rates could rise. Adding to the worries, a newly extended homebuyer tax credit is set to run out at the end of April.

Some analysts question whether the housing market can remain stable without the hundreds of ­billions in government spending now propping it up.

Once the Fed’s mortgage-buying program ends, analysts say rates could rise as high as 6 percent from the current level of about 5 percent for 30-year loans. That’s why some expect the Fed to either extend or expand the program after March, concluding that the housing market remains too fragile.

“You just can’t go from 100 miles an hour to a dead stop and expect it to happen without a big jump in mortgage rates,” said Greg McBride, senior financial analyst at Bankrate.com.

Still, some real estate agents say they feel encouraged. More buyers are shopping around this month than in a typical January, said Kevin O’Shea, an agent at Homes of Westchester Inc in White Plains, New York.

“There are indications that the economy is coming back,” he said. “And that makes buyers feel more secure.”

With median sale prices down 23 percent from their peak in summer 2006, homes have become more affordable in many markets. The tax credit has helped. Many of those active in the housing market these days are first-time buyers or investors looking to gain from the lower prices.

The poor results for last month reported on Monday by the National Association of Realtors occurred after Congress extended the tax credit, easing pressure on buyers to act quickly. The credit of up to US$8,000 for first-time homeowners had been due to expire Nov. 30.

But Congress extended the deadline and expanded it with a new US$6,500 credit for existing homeowners who move.

Last month’s sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the Realtors report said. It was the largest monthly drop in 40-years of record-keeping. Sales had been expected to fall by about 10 percent, economists surveyed by Thomson Reuters said.

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