Sales of existing homes rose in July, surpassing expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.
However, the number of unsold properties hit an all-time high, the latest indication that the worst housing slump in decades is far from over. Prices nationwide are not expected to hit bottom until early next year.
The National Association of Realtors reported Monday that sales rose 3.1 percent to a seasonally adjusted annual rate of 5 million units, up from June's downwardly revised rate of 4.85 million units. Sales had been expected to rise by only 1.6 percent, according to economists surveyed by Thomson/IFR.
"The process of a recovery has begun," said Joel Naroff, president of Naroff Economic Advisors. "It's not going to be short and swift, but it's begun nonetheless."
Home sales were about 13 percent lower than a year ago and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down by 7.1 percent from a year ago.
Despite the third monthly sales increase this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.
That represented a 11.2-month supply at the July sales pace, matching the all-time high set in April.
Until the inventory level is reduced to more normal levels, analysts say, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.
Between 33 and 40 percent of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group.
Some home buyers pounce on lower prices
While buyers are pouncing on lower prices — especially in places like California, Florida and Nevada — sales are sluggish in formerly stable states like Texas.
"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.
In Las Vegas, sales were up 96 percent in July, after prices fell more than 25 percent to a median of $220,000, according to The Associated Press-Re/Max Monthly Housing Report, which analyzed home sales recorded by all real estate agents in 55 cities, regardless of company affiliation.
Sales in Los Angeles jumped 31 percent after prices fell 35 percent over the past year to a median of $335,000, according to the AP-Re/Max report.
In Miami, sales were up 9 percent while prices dropped nearly 10 percent to a median of $280,000. One of those sellers last month was Jennifer Del Pino, who unloaded her 3,600 square-foot Miami home to a buyer from Germany for $490,000.
She cut her asking price by $60,000, but sold her house in about a month.
"It's kind of a relief for me," she said.
One key unknown for the U.S. housing market is the future ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have dramatically cut back the availability of mortgages as they cope with mounting losses from foreclosures.
President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan.
Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's Economy.com.