Business - Real Estate Home sales dip 2.2 pct in spite of tax credits Report seen as 'worrisome sign'

By Alan Zibel

AP Real Estate Writer

WASHINGTON (AP) -- Sales of previously occupied homes dipped 2.2 percent in May, signaling that a boost from home-buying tax credits is fading sooner than expected.

Last month's sales fell from the previous month to a seasonally adjusted annual rate of 5.66 million, the National Association of Realtors said Tuesday. Analysts who had expected sales to rise expressed concern that the real estate market could tumble once the benefit of the federal incentives is gone entirely, starting next month.

Sales have climbed 25 percent from the 4.5 million annual rate hit in January 2009 -- the lowest level of the recession. But they're still down 22 percent from the peak rate of 7.25 million in September 2005.

The report counts home sales when a deal closes. So federal tax credits of up to $8,000 for home buyers likely influenced May's results. The deadline to get a signed sales contract and still qualify was April 30. Buyers must close their purchases by the end of this month.

The tax credits were expected to lift sales in May and June. Lawrence Yun, the Realtors chief economist, said delays in the mortgage-lending process and put about 180,000 potential buyers in limbo. He's unsure if they will qualify by the June 30 deadline. The trade group is pushing Congress to extend the deadline for closing a sale until Sept. 30.

The report is "a worrisome sign for what will occur in July and thereafter when the effect of the tax credit is behind us," said Joshua Shapiro, chief U.S. economist at MFR Inc., an economic consulting firm in New York.

The drop in May sales was led by a more than 18 percent decline in the Northeast. Sales were unchanged in the Midwest, but rose nearly 5 percent in the West and 0.5 percent in the South.

The inventory of unsold homes on the market dropped 3.4 percent to 3.9 million. That's an 8.3 month supply at the current sales pace, compared with a healthy level of about six months. The median sales price in May was $179,600, up 2.7 percent from a year earlier.

Foreclosures and short sales -- in which the lender agrees to accept less than the total mortgage -- made up 31 percent of sales in May. First-time buyers made up 46 percent.

The report "suggests that even government stimulus in the form of a tax credit isn't enough," to support the U.S. housing market, wrote Guy LeBas, an analyst with Janney Montgomery Scott.

Published: Wed, Jun 23, 2010

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