WASHINGTON - Sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.
Many analysts said the worst slump in housing in 16 years is likely to deepen in coming months, reflecting the recent turmoil in credit markets, which has caused lenders to tighten their standards.
The National Association of Realtors reported Monday that sales of existing homes dipped by 0.2 percent in July, compared to June, to a seasonally adjusted annual rate of 5.75 million units.
The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.
On Wall Street, stocks retreated on Monday after the housing report renewed concerns about the strength of the economy. The Dow Jones industrial average dropped 56.74 points to close at 13,322.13.
The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.
But economists said the report on existing home sales signaled further trouble ahead, given a big jump in the inventory of unsold homes which rose by 5.1 percent to a record level of 4.59 million homes.
Based on the July sales pace, it would take 9.2 months to exhaust the number of single-family homes on the market, the highest level in nearly 16 years, and 11.9 months to exhaust the level of condominiums on the market. The months supply of condos sitting on the market is 45.1 percent higher than a year ago.
The rising glut of unsold homes is putting downward pressure on prices. The median price of an existing home, the point where half of homes sold for more and half for less, has now fallen every month for a year, something that has not occurred before on Realtors' records going back to 1969. Economists said to expect more price declines in coming months.
'We are literally swimming in an ocean of homes for sale,' said Mike Larson, a real estate analyst with Weiss Research Inc. 'Until we work through this extremely large inventory glut, we're not going to see any momentum in home prices.'
Analysts said the financial market turbulence that has occurred in August will mean further downward pressure on home sales as big investors such as hedge funds grow more leery about purchasing mortgages that have been packaged into securities for fear that the rising number of defaults will mean they won't get repaid.
Even before the latest market turbulence, banks and other lenders were tightening up on their loan standards in response to rising delinquencies, especially on subprime loans extended to borrowers with weak credit histories.
'With fewer buyers qualifying for loans and lots of unsold houses out there, that makes a choice recipe for further sales declines this fall and into the winter,' said Stuart Hoffman, chief economist at PNC
Hoffman said there is a growing threat that the severe slump in housing and sagging consumer confidence will weigh on consumer spending in the second half of this year, presenting a significant risk to the overall economy. But he said he believed the country would be able to avoid an outright recession because the Federal Reserve will decide at its next meeting on Sept. 18 to cut the federal funds rate, the key benchmark rate for millions of consumer and business loans.
Hoffman said he expected the September Fed rate cut would be the first of several as the central bank steps up its efforts to combat the current turbulence. The Fed in the past two weeks has supplied the banking system with billions of dollars to encourage banks to keep making loans and on Aug. 17 announced a half-point cut in its discount rate, the interest it charges to make direct loans to banks.
Sen. Charles Schumer, D-N.Y., said the latest housing report showed the need for Congress to increase efforts to deal with the potential flood of foreclosures that are being projected over the next two years as nearly 2 million homeowners with adjustable-rate mortgages experience payment shocks as their loans reset in a weakening housing market.
'We need to deal with widespread uncertainty in the mortgage market and help to refinance borrowers who were duped into bad loans,' said Schumer, who is sponsoring legislation to boost federal support for mortgage counseling services.
The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.
By region of the country, sales fell by 2.2 percent in the Midwest and were unchanged in the South. Sales rose by 1.8 percent in the West and 1 percent in the Northeast.
Lawrence Yun, senior economist for the Realtors, said he viewed the rise in sales in the Northeast as a potentially hopefully sign of a national rebound since that was the region where sales and prices first started falling after a five-year boom which ended in 2006.