26.10.2006 11:42 Real Estate
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Just hours before an announcement from the Federal Reserve that it was holding the federal funds rate steady, the National Association of Realtors said home resales slowed to an annual rate of 6.18 million from a 6.30 million pace in August.
It was the slowest sales pace since January 2004, when they were ramping up during a multiyear boom. In addition, median home prices fell 2.2 percent from a year earlier, matching a drop in August that was the first decline since April 1995.
Prices for U.S. government bonds rose on home sales decline, which was bigger than expected on Wall Street. Bonds gained further after the Fed's afternoon decision on the view that the next move on interest rates might be down.
In announcing its decision to hold the overnight fed funds rate at 5.25 percent, the Fed cited the "cooling housing market" as a factor that has slowed economic growth.
While the Fed's statement also noted that "some inflation risks remain," analysts saw the home sales weakness as a signal that higher interest rates might not be needed.
"This suggests that we still have a very weak housing market and that housing will probably (continue) be a drag on the economy," Gary Thayer, chief economist with A.G. Edwards & Sons of St. Louis, said of Wednesday's data.
WORST OVER?
After shooting ahead at an annual 5.6 percent pace in the first three months of the year, economic growth slowed to just a 2.6 percent rate in the second quarter.
Economists polled by Reuters expect growth slowed further in the third quarter. The government reports on third quarter growth on Friday, and the consensus forecast is for a 2.2 percent advance.
Still, the realtors' report contained hints the housing market may be stabilizing after its sharp slump.
The inventory of homes for sale fell 2.4 percent, or 93,000 units, to 3.75 million, its second consecutive drop, although the number of unsold homes on the market remained at a relatively high 7.3 months' supply.
"The peak in the housing inventory is likely to have passed," said Lawrence Yun, an economist with the NAR.
"We expect a further steady decline in inventory over the next several months," he said, adding that the current buyers' market will likely become a more balanced market by spring.
While the market may be finding a balance, analysts said the risk that housing-sector weakness could pull the overall economy lower would likely remain on the minds of Fed officials as they consider the future course of interest rates.
"It looks like the supply side of the market is starting to play ball," said Gregory Miller, chief economist for SunTrust Banks in Atlanta. "Home owners had been holding their prices pretty sticky until the last two months. Now it looks like both sides of the market have conceded."
A separate report from the Mortgage Bankers Association showed U.S. mortgage applications rose slightly last week, reflecting an increase in demand for home refinancing loans.
The MBA's mortgage application activity index, which covers both refinancing and purchasing loans, increased 0.5 percent in the week to October 20 to 588.6, its first rise in three weeks.
In another report, the Chicago Federal Reserve Bank said its national activity index dipped to -0.51 in September from -0.06 in August, suggesting the economy is only moving sluggishly.
(Additional reporting by Julie Haviv in New York)
