Existing-homes sales rise, inventory swells

By Patrick Rucker

WASHINGTON (Reuters) - Sales of previously owned U.S. homes increased slightly in July thanks to lower prices, but record inventory suggested the battered housing market is unlikely to recover soon, a report showed on Monday.

Home resales rose 3.1 percent to a 5 million-unit annual rate, according to the National Association of Realtors. It was the largest increase in 17 months and pushed the sales rate above the 4.9 million pace analysts had expected.

Still, the overall picture was mixed.

The median national home price declined 7.1 percent from a year ago to $212,400 and the inventory of homes for sale rose to 4.67 million which would take 11.2 months to clear at the current sales pace. That matched a record set in April.

The data points to a generally weak but stable market since the volume of sales has hovered around 5 million for 10 months despite gyrations in price and inventory, said Michael Englund, chief economist with Action Economics in Boulder, Colorado.

"Generally we have re-established the sideways pattern in existing home sales since October, which given the general down draft in a lot of housing data it is certainly good news that we seem to have some kind of floor," he said.

U.S. stocks initially pared losses after the data but the benchmark S&P 500 index closed down almost 2.0 percent on concerns about the health of the financial industry. Yields on the benchmark 10-year Treasury were lower and the U.S. dollar closed higher against the euro.

Also in July, overall U.S. economic activity weakened and lingered at recession-like levels according to a study from the Federal Reserve Bank of Chicago that blends data from several economic sectors.

CREDIT CRUNCH

Financial markets have been on edge in the recent weeks as a year-old global credit crunch continues to keep borrowing costs high and doubts continue about the health of mortgage-finance companies Fannie Mae and Freddie Mac as well as investment bank Lehman Brothers.

Wall Street firms and banks that made big bets on the housing market have been stung by sinking home values and increasing mortgage defaults over the last eighteen months.

Sales have rebounded in many markets in the U.S. West and Florida recently where prices have tumbled, but it is too soon to call a bottom for those regions, Realtors' chief economist Lawrence Yun said. "There is still too much uncertainty," he said.

Other analysts agreed that the July data was a relief after months of grim news for housing, which enjoyed five boom years before prices begin to slide in 2006. Compared to a year ago, the median existing home price was off 7.1 percent.

"Right now the sign is encouraging, not that it's over, but you're starting to see a bottom," said David Wyss, chief economist for Standard & Poor's in New York.

"Prices have come down more than we have expected, but sales and starts have actually held up better. That may be a sign of realism out there, that people have accepted the fact they can't get as much for the house as they thought they could."

(Reporting by Patrick Rucker)