Housing market slump seen stretching further
WASHINGTON (AP) - July 10, 2008 The latest report, the National Association of Realtors' pending
home sales index, slipped by 4.7 percent in May to the third-lowest
reading on record. The decline "suggests we are not out of the
woods by any means," said the trade group's chief economist
Lawrence Yun.
The bad news came as the regulator for Fannie Mae and Freddie
Mac tried to reassure investors that an accounting rule change
wouldn't force the government-chartered mortgage finance companies
to raise tens of billions in capital to offset losses.
With more negative data about the housing market continuing to
emerge as the economy weakens and job losses accelerate, economists
are reluctant to say the worst is over.
"Even if housing market activity does manage to bottom out
later this year, it is likely that any recovery would be
exceedingly slow," Jeffrey Lacker, president of the Federal
Reserve Bank of Richmond said in a speech in Washington.
While home sales are likely to fall to their lowest point late
this year or early next year, any recovery is likely to be weak
through at least 2010, said Mark Vitner, senior economist with
Wachovia Corp.
Meanwhile, prices shouldn't hit bottom for another year at the
earliest, Vitner said, since the housing market is glutted with
unsold new homes and foreclosed properties.
Making matters worse, rates on 30-year mortgages have been above
6 percent since late May, leading to a steep decline in new
applications.
The Realtors' seasonally adjusted index of pending sales for
existing homes fell 4.7 percent to 84.7 from an upwardly revised
April reading of 88.9. The index was 14 percent below year-ago
levels. Sales are considered pending when the seller has accepted
an offer, but the deal has not yet closed.
Wall Street economists surveyed by Thomson/IFR had predicted the
index would come in at 87. The index, which sunk to a record low of
83 in March, stood at 98.5 in May 2007. A reading of 100 is equal
to the average level of sales activity in 2001, when the index
started.
Pending sales fell around the U.S., sinking the most in the
South, and the least in the West.
Despite the negative numbers, "the worst of the hemorrhaging is
behind us" and a modest recovery is likely to take shape next
year, said Bernard Baumohl, managing director of the Economic
Outlook Group.
Homeowners shouldn't get too excited, though, as Baumohl
predicts median prices will show year-over-year gains of no more
than 6 percent by next year.
By the Realtors' measurement, prices nationwide were down 6.3
percent in May, but are falling faster in big cities. The Standard
& Poor's/Case-Shiller home price index of 20 cities fell by 15.3
percent in April compared with a year ago, dropping prices to their
lowest levels since August 2004.
Meantime, shares of mortgage financiers Fannie Mae and Freddie
Mac stabilized Tuesday, a day after plunging to early-1990s levels
on worries they might need billions of dollars in new capital if a
new accounting rule is put into effect.
Fannie Mae shares rose $1.88, or 11.9 percent, to $17.62
Tuesday, a day after plunging more than 16 percent. Freddie Mac
shares rose $1.55, or 13 percent, to $13.46 after sliding nearly 18
percent Monday.
The federal regulator for the two companies, Office of Federal
Housing Enterprise Oversight Director James Lockhart, said in a
CNBC interview the accounting changes "would really have no impact
on the risk of these firms." It would "make no sense" to mandate
extra capital due to accounting changes, he said.
While the government is widely expected to stand behind Fannie
and Freddie's debt should the companies be unable to meet their
obligations, shareholders' interests are not protected.
"The shareholders are the ones who are at huge risk here ...
they could potentially get wiped out," said Nigel Gault, chief
U.S. economist at Global Insight.
Highlighting those risks, shares of mortgage lender IndyMac
Bancorp Inc. plummeted to an all-time low of 34 cents Tuesday
morning before recovering slightly, a day after the mortgage lender
said it halted accepting new loan submissions in its main mortgage
lending divisions and plans to slash more than half its work force.
As the housing market and broader economy continue to sag,
Senate lawmakers appeared on track to approve - possibly by week's
end -a rescue plan designed to save hundreds of thousands of
homeowners from foreclosure.
But it was still uncertain whether lawmakers would reach a deal
with the White House, which is balking at key portions of the bill,
particularly $3.9 billion included for buying and fixing up
foreclosed properties. Democrats argue the money is key to
preventing neighborhood blight, but most Republicans call it a
bailout for lenders who helped cause the mortgage mess.
Speaking Tuesday to a mortgage-lending forum in Arlington, Va.,
Treasury Secretary Henry Paulson emphasized the limits of what the
government can do to help.
"Many of today's unusually high number of foreclosures are not
preventable," Paulson said. "There is little public policymakers
can, or should, do to compensate for untenable financial
decisions."
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AP Business Writer Stephen Bernard in New York contributed to
this report.