WASHINGTON (Reuters) - Sales of previously owned U.S. homes fell in October, with the median home price notching its biggest drop on record as tough economic conditions kept buyers on the sidelines, data showed on Monday.
Adding to the gloom for the U.S. economy, a separate report from the Federal Reserve Bank of Chicago showed its National Activity Index contracted again in October, staying mired in negative terrain for 15 straight months.
But the markets largely shrugged off the reports as on Wall Street stocks ended sharply higher, cheered by the U.S. government’s decision to inject $20 billion into Citigroup, which averted the banking giant’s collapse.
However, the stocks rally eroded some of the appeal of the U.S. dollar and Treasury bonds, pushing them weaker.
Investors’ mood also brightened on Monday as President-elect Barack Obama’s officially named veteran hands Timothy Geithner, president of the New York Federal Reserve Bank, as his pick for Treasury secretary, and Lawrence Summers, who served as Treasury secretary under President Bill Clinton, as director of the National Economic Council.
Speaking at a news conference, Obama cited the wealth of experience of his prospective economic team and stressed this would help his administration’s efforts to get the embattled economy back on track as soon as possible after taking over in January.
However, news on the dire state of the economy was not far behind. The National Association of Realtors said the pace of sales of existing homes in the United States fell 3.1 percent in October to a 4.98 million-unit annual rate, slightly below economists’ expectations for a 5.0 million-unit pace.
On an annualized basis, sales were down 1.6 percent on the 5.06 million-units sold in October of last year.
“Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” NAR chief economist said Lawrence Yun told reporters.
The inventory of existing homes for sale slipped 0.9 percent to 4.23 million from 4.27 million in September. The median national home price declined 11.3 percent from a year ago to $183,300, the lowest since March 2004, the NAR said.
However, the percentage drop in prices was the biggest since the NAR started keeping records in 1968. Distressed sales are accounting for about 45 percent of existing home sales.
Analysts said even though housing had become more affordable, sales were likely to remain depressed because of tight access to credit and mounting job losses.
HOUSING RECOVERY SEEN DELAYED
“Inventories will remain stubbornly high for the next few months because of weak sales combined with a slowdown in the household formation rate,” said Patrick Newport, U.S. economist at IHS Global Insight in Lexington, Massachusetts.
“The household formation rate is slowing because job losses and rising foreclosures are leading more people to move in with relatives or friends. This slowdown is just one more impediment that will delay the housing recovery.”
The housing malaise, which triggered a global financial crisis, has infected other sectors of the broader economy, translating into the highest unemployment rate in 14 years and a record drop in retail sales.
Analysts say stability in the housing sector is key to any recovery in the U.S. economy, which independent surveys say is in recession.
In the Chicago Fed’s report, while the index improved to minus 1.06 in October from a revised minus 3.11 in September, it has stayed below trend growth for 15 straight months dating to August 2007.
The index’s three-month moving average also moved up, off the lowest level since January 1982.
Our Standards: The Thomson Reuters Trust Principles.