Bright spots amid battered housing market

By Julie Haviv - Analysis

NEW YORK (Reuters) - The country is still in the throes of the worst U.S. housing market downturn since World War Two, but glimmers of hope emerged amid a deluge of data this week.

The median national home price sank further in May and inventories linger at record-high levels, but some of the data suggests the flood of bad news may be leveling off.

The fate of housing is integral to the U.S. economy, and after the market's downfall severely sapped growth in recent quarters, any signs of recovery could also signal a turnaround for the world's largest economy.

The Federal Reserve is also concerned. In its latest policy statement published on Wednesday, the central bank cited the "ongoing housing contraction" as one of several factors likely to weigh on economic growth over the next few quarters.

"We are at the beginning of the end of the downturn," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

"It will be a long painful ending, but this is the first step in bringing the downturn to a close," he added.

The median home price sank 6.3 percent from a year ago in May, the National Association of Realtors (NAR) reported on Thursday, yet existing-home sales rose 2 percent and pushed the inventory of unsold homes down by 1.4 percent to a 10.8 months' supply at the current sales pace.

On Tuesday, the Standard & Poor's widely watched S&P/Case-Shiller Home Price Indices for April showed home prices extended their record annual slump, but the pace of monthly declines had slowed for most of the markets it tracks.

While this is a positive sign, an unwieldy supply of homes for sale -- buttressed by surging foreclosures -- indicates that the moderation in the pace of home price declines should be viewed with caution, Goldman Sachs said in commentary on Tuesday.

Zandi said home prices, based on the S&P/Case-Shiller data, have fallen about 15 percent and he is expecting them to drop another 10 percent before reaching a trough in the spring of 2009.

Home prices have been deflating. While that is not a positive development for homeowners, it is luring buyers.

Zandi said construction and housing starts will bottom in the fall.

The NAR data showed the level of existing homes supply is still lofty. Most economists contend an unwieldy supply is one of the biggest factors preventing the U.S. housing market from rebounding out of its two-year-long slump.

The inventory of new homes available for sale in May dropped 1.7 percent to 453,000, which was the 13th consecutive monthly decline, government data showed on Wednesday. Sales of newly built single-family homes fell 2.5 percent in May to an annual rate of 512,000 units and were down more than 40 percent from a year ago.

Builders have slashed housing starts aggressively, helping pare the inventory of homes for sale, a bright spot amid the gloom, said Mike Larson, a real estate analyst at investment firm Weiss Research in Jupiter, Florida.