WASHINGTON -- Fewer people likely bought previously occupied homes in May than in April, a blow to a housing market that is struggling to regain its footing.
Economists expect the May sales pace fell by nearly 5 percent from the previously month to a seasonally adjusted annual rate of 4.8 million homes, according to a survey by FactSet. The National Association of Realtors will release the report at 10 a.m. Tuesday.
Sales fell by nearly 1 percent in April to a seasonally adjusted annual rate of 5.05 million homes. That’s far below the 6 million homes a year that would need to be sold to sustain a healthy market, economists say.
Since the housing boom went bust in 2006, sales have fallen in four of the past five years and hit a 13-year low last year. Declining home prices and low mortgage rates haven’t been enough to boost sales this year.
Investors are the ones filling the vacuum. They are spending cash to scoop up deeply discounted homes in hard-hit areas, such as Phoenix, Las Vegas and Tampa. Foreclosures and short sales -- when a lender agrees to accept less than what is owed on a mortgage -- make up an increasingly large portion of all home sales. And a wave of foreclosures are being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices.
By comparison, purchases by first-time homebuyers are falling. Bigger down payments, tougher lending rules, heavy credit-card and student-loan debt and a shortage of desirable starter homes are keeping many would-be buyers away. Even some who do have enough money for a down payment and a solid credit history are holding off, worried home prices will keep falling.
First-time homebuyers are critical to a strong and stable housing market. They normally make up about half of all home sales. They tend to keep their homes for years as well. What’s more, their purchases of low and moderately priced homes allow sellers to move up to pricier homes.
Another growing problem is that some sales that are under contract and almost finished are falling apart at the last minute. The Realtors’ trade group has noted that an increasing number of deals have been canceled because an appraisal came in below a negotiated price, scuttling home loans in the process.
All the while, previously occupied homes are cheap and in great supply.
Re-sold homes are a bargain compared to new homes. The median price of a new home is more than 30 percent higher than the median price for a previously occupied home. That’s twice the normal markup.
A glut of millions of unsold homes is also weighing on prices, forcing sellers to slash their prices in order to grab the attention of potential buyers.
Most economists say home prices will keep falling, by at least 5 percent, through the rest of the year. Many forecasts don’t anticipate a rebound in prices until at least 2013.