Sales of existing homes fell for a third straight month in May, dropping to the lowest level in four years as the median sales price declined for a record 10th consecutive month.
In a troubling sign for the future, the inventory of unsold homes shot up to the highest level in 15 years, meaning more downward pressure on prices in the months ahead until the inventory glut is reduced.
Sales fell by 0.3 percent in May to a seasonally adjusted annual rate of 5.99 million units, the National Association of Realtors reported Monday. Sales now stand 10.3 percent below where they were a year ago.
The median price of an existing home sold last month fell to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch on record.
After rising more than 100 points earlier in the day, the Dow Jones industrial average lost those gains to finish down 8.21 points at 13,352.05.
The drop in home sales was in line with expectations, providing relief on Wall Street where analysts had been braced for an even worse showing.
Economists predicted home prices would likely head lower in the months ahead because of continued troubles in reducing the stockpile of unsold homes, which rose 5 percent in May to 4.43 million units. That was an 8.9 months supply at the May sales pace, a level that has not been seen since July 1992, the last time the country went through a serious housing slump.
“The only way we are going to chip away at this Mount Everest-sized pile of inventory is by price cuts and so far, sellers haven’t been aggressive enough,” said Mike Larson, a real estate analyst at Weiss Research. “Don’t look for a lasting bottom in the housing market anytime soon.”
The sales decline was led by a 3.4 percent drop in the South. Sales also fell in the West, dropping 0.8 percent. Sales rose by 5.8 percent in the Northeast and 0.7 percent in the Midwest.
Economists predicted further sales declines in coming months as housing is affected by recent troubles in subprime mortgages, which have caused banks and other lenders to raise their qualification standards, making it harder for potential buyers to obtain financing. Rising mortgage defaults also mean more homes dumped on a glutted market.
Some analysts said they believed the once high-flying housing market was going through a crisis of confidence. Sales of both new and existing homes set records for five-straight years, prompting what many believe was a speculative bubble in some parts of the country as investors rushed in to buy properties in hopes of a quick resale to take advantage of home prices that were climbing at double-digit rates.
Lawrence Yun, senior economist for the Realtors, noted that household formation had slowed. He said that implied many people had decided to put off buying a home and were doubling-up in rental units or moving back home with parents.
“It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market,” he said. “The lack of buyers’ confidence is a major factor in the lower sales.”
He said activity in the existing home sales market, which accounts for about 86 percent of annual sales, would continue to suffer until builders were more successful in trimming their production levels for new homes, which make up the other 14 percent of annual home sales.
The National Association of Home Builders reported earlier this month that builder sentiment dropped in June to the lowest reading since February 1991, reflecting the spreading troubles with subprime mortgages, which go to borrowers with weak credit histories.
Trimming their forecasts, the Realtors now expect existing home sales will fall by 4.6 percent this year, down from a previous forecast of a 2.9 percent drop. They expect the median price of a home to fall by 1.3 percent this year, which would be the first annual price decline on record.
Adding to the problems in housing, mortgage rates have recently begun to rise, although they remain well below their historic averages. According to Freddie Mac, the average commitment rate for 30-year mortgages was 6.26 percent in May, up from 6.18 percent in April.