The number of unsold homes on the market in the United States is at levels not seen for at least 40 years, and prices are continuing to slide, according to a disheartening new survey.
With participants throughout the financial system saying that the credit crisis cannot end until the US housing market stabilises, the monthly data from the National Association of Realtors (NAR) failed to show any unequivocal improvement.
The July figures did show an increase in the number of buyers, lured by the prospect of getting a long-term bargain. However, two out of every five sales are now distressed sales – such as foreclosed homes put on the market by banks – and desperate sellers are continuing to drop their prices.
The median price of a US home fell in July to $212,400, down 7.1 per cent on a year ago, according to the NAR. There was a 3.1 per cent increase in the seasonally adjusted number of sales last month compared with June, better than economists had predicted, but activity levels were 13.2 per cent lower than July 2007, and the number of homes coming on to the market also rose in July, meaning that it would take 11.2 months to clear the backlog at the current pace. That figure is the highest since the NAR began collecting data in 1968.
All the figures exclude newly built homes, of which there is a glut and whose latest monthly sales data is released today.
Sales activity has picked up in those parts of the country which were first into the downturn and which have suffered the biggest house price falls, particularly in the South-western US, where developers spent billions building new homes to meet demand from speculators.
Lawrence Yun, NAR's chief economist, said home prices could reach a bottom in these regions relatively soon, even if the rest of the country lags behind. "Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time," he said. "Still, inventory remains high in many parts of the country and will require time to fully absorb."
Stock market investors declined to interpret the increased sales activity as green shoots of recovery. The Dow Jones Industrial Average closed down 242 – 2.1 per cent – at 11,386, potentially presaging a weak start for the FTSE 100 today when London traders return from the long weekend. John Lonski, chief executive at Moody's Investors Service, said the 3.1 per cent month-on-month increase in sales activity was "a step in the right direction". He said: "The question is whether more steps will be taken."
There were several reasons to be less than cheerful, including the rise in unemployment and weakening consumer confidence, together with the rise in mortgage rates and tighter borrowing conditions, which are pushing mortgages out of reach for more and more Americans, Mr Lonski said.
Trillions of dollars of debt was built atop the US housing market, as Wall Street used mortgages as the collateral for a vast array of derivatives, traded throughout the credit markets. As US borrowers have begun defaulting on their mortgages in record numbers, and as the value of their homes has tumbled, it has become impossible to properly assess the value of those trillions of dollars of debt. As a result, large parts of the credit markets have ground to a halt.
The rise in US mortgage rates is being exacerbated by fears over the future of Fannie Mae and Freddie Mac, the mortgage finance giants, who own or guarantee nearly half of all US home loans. Last night, JPMorgan Chase said it would have to write off a further $600m after its holdings of Fannie and Freddie preferred stock tumbled in value.