NEW YORK Sales of previously owned U.S. homes fell unexpectedly in May as delays in processing mortgage applications hampered the closing of contracts benefiting from a popular homebuyer tax credit.
KEY POINTS: * The National Association of Realtors said sales fell 2.2 percent month over month to an annual rate of 5.66 million units from an upwardly revised 5.79 million-unit pace in April. * Analysts polled by Reuters expected May sales to rise 5.5 percent to a 6.12 million-unit pace from the previously reported 5.77 million units in April. * Sales were expected to rise as transactions for existing homes are measured at contract closing. Although the tax credit for home buyers expired in April, qualified home owners have until June 30 to close contracts. Sales were up 19.2 percent compared to May last year.
PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS, NEW YORK:
"Here's the thing, where we are in the calendar, meaning May and June, I thought we were going to see a bit of a dichotomy between new and existing home sales. My feeling was existing home sales were going to keep rising but new home sales were going to fall off a cliff and that's because of the way Congress structured the $8,000 first time tax credit.
"Now we may still end up with a positive May because they are revised higher, but this certainly doesn't give us confidence because this number was down and we were expecting an increase. The good news is that April got revised up, so we've got a little bit of a higher base to work off of. But I was expecting we were going to push a number over 6 million units, which would have given us a positive number and we came in a 5.66 million, which is a 2.2 percent decline. We may be able to revise this number higher, but on the surface at least, this is disappointing. Our expectation is that the new home sales number is going to be down 15 to 20 percent. So I'm not expecting any good news there - today was my beacon of hope, and we didn't get it."
PAUL KASRIEL, SENIOR VICE PRESIDENT AND DIRECTOR OF ECONOMIC RESEARCH, NORTHERN TRUST, CHICAGO
"It was a little disappointing. It was generally expected that sales would be up given earlier contract signings because of the tax credit. So it is a little surprising, but in general it isn't surprising that we're seeing moderation after the expiration of the tax credit. The purchase of a home is extremely attractive today. There could be some issues qualifying for mortgages, but we also saw moderation of car sales after the expiration of cash for clunkers, though they then rebounded. I think we'll see a similar situation with home sales. It's going to be a two step forward, one step backward housing recovery."
KURT KARL, CHIEF U.S. ECONOMIST, SWISS RE, NEW YORK:
"You have had a lot of optimism because of the subsidy last month, but what you have been seeing is that basically the housing market has been moving sideways. It is really not going up much, although it is up year on year but not up compared to the last few months. It is a very modest improvement in the home market at this time -- it is not a V, definitely a U at best.
"We're not revising our forecast for housing. I don't have a really robust (forecast), I was hoping that it would turn robust but it just isn't and what we have seen in the last couple of months is an emphatic confirmation of the U recovery as opposed to a V recovery. We had hoped that it was going to turn into something really strong after employment got going, but we are not getting it."
MICHAEL MCGERVEY, PRESIDENT, MCGERVEY WEALTH MANAGEMENT, NORTH CANTON, OHIO:
"We have an excess supply of inventories with no end in sight anytime soon. The market is saturated. Today, more than 25 percent of homeowners are currently underwater with their mortgages. We have to consider there is a lot of inventory that's out there, such as bank inventories, shadow inventories, and a lot of foreclosures. If the banks begin to release this even modestly, that could increase the number of homeowners underwater to about 35 percent."
GARY THAYER, CHIEF STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:
"It was disappointing. We had anticipated another increase because of the home buyer tax credits, but it looks like we may get less of a boost from the tax credit than we expected. Sales are better than they were a year ago. It helped. But not as much as a lot of people expected.
"Clearly there's a large supply of homes on the market. Prices are a little firmer than they were a year ago, but it's still a buyers' market. The tax incentives are not a permanent fix for housing. We will need to see improved employment before we see a sustained recovery in housing."
STEPHEN STANLEY, CHIEF ECONOMIST, PIERPONT SECURITIES, STAMFORD, CONNECTICUT:
"It was a downside surprise. the thought was that there would be a last wave of sales from the home-buyer credit. It will be interesting to see over the next several months what kind of give back we will see. People are thinking even these levels are not sustainable. It's hard to discern the trend because of the home-buyer credit and the bad weather earlier this year.
"There hasn't been much of a rebound in housing. They are off the lows from a year ago. Unemployment seems to coming around but income hasn't been growing as quickly as one has hoped.
"Still, housing won't be dragging on the GDP this year. We are growing from the extremely low levels of last year. On average, we are looking for a moderate advancing trend."
BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:
"There was some hope that the main number might still show improvement, based on the homebuyer tax credit. But it clearly did not, and it's only going to get worse from here given that the tax credit has expired. It's a sign of things to come. Housing will likely deteriorate, and that's just one more negative on top of high unemployment, stagnant wages and a very anemic recovery. It's indicative of the market sentiment out there that the China euphoria lasted all of 18 hours yesterday before we reverted to risk aversion. It's very telling."
MARKET REACTION: STOCKS: U.S. stock indexes pared gains. BONDS: U.S. Treasury debt prices rose. DOLLAR: U.S. dollar was up slightly against the euro.