Existing-Home Sales Post Decline As Higher Interest Rates Deter Buyers

By Jeff Bater and Michael S. Derby
From The Wall Street Journal Online

Sales of existing homes in the U.S. fell in May to a 6.67 million annual rate, a 1.2% decline from April, the National Association of Realtors said Tuesday.

Meanwhile, an improved outlook for the economy's performance over coming months helped lift U.S. consumers' mood in June, amid a mixed outlook for the jobs market.

NAR chief economist David Lereah said rising interest rates are affecting home sales. "Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability," Mr. Lereah said.

The level of resales in May was above Wall Street expectations. Analysts predicted a 6.64 million rate of sales of previously owned homes.

Analysts said this is a classic pattern for a cooling housing market with sales starting to lag under the impact of rising mortgage rates.

Mr. Lereah said he expected sales to fall by 6.8% from last year's record pace. Sales had surged to record levels for five consecutive years as buyers responded to the lowest mortgage rates in four decades.

But with mortgage rates climbing steadily under the impact of credit tightening by the Federal Reserve, analysts look for housing to slow this year but not to crash.

The average 30-year mortgage rate was 6.6% in May, up from 6.51% in April, according to Freddie Mac. The median home price increased to $230,000, compared with a revised $222,000 in April.

The inventory of homes on the market increased to 6.5 months, from April's revised 6.1 months, NAR said. Existing home sales were mixed in the four regions of the U.S. Demand fell 3.8% in the Midwest and 4.2% in the Northeast, while it rose 0.7% in the West and 0.4% in the South.

Separately, private research group the Conference Board reported Tuesday that its index of consumer confidence for June performed better than forecasters had thought, hitting 105.7, up from a revised 104.7 in May. Economists had expected the June reading to come in at 104.0. The index was equal to 100 in 1985.

The rise in June was rooted in the group's expectation index, which moved up to 87.6, versus May's revised 85.1. Meanwhile, the present situation index, which gauges consumers' mood on the current state of the economy, edged down to 132.7, from May's revised 134.1.

Against the unexpected buoyancy of the report, the Conference Board argued for some caution. "Despite the uptick, consumers remain concerned about the short-term outlook," noted Lynn Franco, who directs the group's Consumer Research Center. "The present situation index lost ground for the second consecutive month, a signal that the economy is shifting into lower gear heading into the second half of this year."

Indeed, a wide range of recent economic data has been pointing to a slowing economy, led by a moderation in housing activity. However, the Federal Reserve, which meets to deliberate on interest-rate policy on Wednesday and Thursday, hasn't gotten much breathing room. Mounting inflation pressures are broadly expected to drive policy makers to raise rates to keep price pressures in check, and many believe the rate hikes could continue as the year progresses.

The Conference Board said in its report that those who called economic conditions "good" in June slipped to 26.8% of those surveyed, versus 28.5% who held the same view last month. Those calling conditions "bad" also moved down, falling to 14.9%, after 15.2% in May.

The group called labor market assessments "mixed." Survey respondents calling jobs "plentiful" fell to 28.1%, down from 29.1% a month ago. But those calling jobs "hard to get" also lost ground, sliding to 19.9% in June, from 20.2% who offered the same view in May.

The Conference Board noted the outlook for hiring was more "optimistic" and added those who expect to see their incomes rise over coming months was "virtually unchanged" at 17.1% of the survey.

The Conference Board report is based on a mail-in survey of 5,000 households. The cutoff date for responses was June 20.

-- The Associated Press contributed to this article.

ERA Othello Realty is your source for your real estate needs throughout New Jersey. From the shores of Spring Lake NJ to Newark NJ they can handle all your real estate buying and selling needs. For homes for sale in Monmouth, Ocean, Mercer, Burlington, Camden, Middlesex, Passaic and all the other counties in NJ. From Central NJ to Northern NJ to Southern NJ you can count on ERA Othello Realty for New Jersey Real Estate.