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Existing-home sales fell 2.2 percent in October

Sales of previously owned homes slipped in October as the housing market continues to battle tough economic conditions including high unemployment and tight credit.
/ Source: The Associated Press

Sales of previously owned U.S. homes slipped slightly in October as the housing market continues to battle tough economic conditions including high unemployment and tight credit.

The National Association of Realtors said Tuesday that sales of previously owned homes dipped 2.2 percent last month to a seasonally adjusted annual rate of 4.43 million units. The performance was weaker than had been expected. Economists at JPMorgan Chase had forecast that sales would rise in October to an annual rate of 4.60 million units.

The median price for a home sold in October was $170,500, down 0.9 percent from a year ago, as prices continue to be depressed by weak sales conditions and a huge overhang of unsold homes.

Sales had plunged to the slowest pace in 15 years in July and then posted gains in August and September before slipping back in October. Sales in October were 38.9 percent below their peak of 7.25 million units set in September 2005 during the height of the housing boom.

The Realtors group said that the moratorium that many big lenders imposed on foreclosures may have dampened sales in October by introducing more uncertainty in the sales market. But they said a bigger problem is the tight lending standards that banks have put in place in the wake of record foreclosures.

"The dial has been tightened way too much" on lending standards, said Lawrence Yun, chief economist of the Realtors.

Yun forecast that sales of existing homes for the entire year will total 4.8 million units, which would be 7 percent below the 5.16 million homes sold last year, showing that the housing market continues to struggle with tight credit and unemployment that remains painfully high in the wake of the worst recession since the 1930s.

The forecast of 4.8 million sales would be the poorest performance since 1997 when 4.37 million homes were sold. Yun said he was looking for a modest rebound in 2011 as the labor market slowly improves. He forecast sales of previously owned homes would rise to 5.1 million units next year, capping a wild decade in which a housing boom pushed sales and home prices to record levels only to see a collapse starting in 2006.

Sales were down in all regions of the country in October. Sales fell 3.4 percent in the South, the largest decline of any region. Sales fell 1.9 percent in the West, 1.3 percent in the Northeast and 1.1 percent in the Midwest.

Risky mortgage practices and lax lending standards contributed to the housing bubble. Foreclosures have soared to record highs and remain a major drag on the housing industry. The concern is that problems with flawed foreclosure documents could keep buyers on the sidelines and further depress sales.

In a survey taken by the Realtors group in October, about 23 percent of agents said they had clients who were no longer interested in purchasing a foreclosed property because of uncertainty raised by the possibility of flawed documents.

"This has been a noisy period for the resale housing market, with the foreclosure mess creating great uncertainty and consternation among buyers and sellers and essentially interfering with the sales process," said Jennifer Lee, senior economist at BMO Capital Markets.

Also weighing on the housing industry is a glut of unsold properties. For October, the Realtors reported that the inventory of unsold homes stood at 3.86 million units. That was a 10.5 month supply at the October sales pace, significantly higher than the six-month inventory that is considered a sign of a healthy housing market.

The overhang of unsold homes has curtailed construction of new homes. The Commerce Department reported last week that construction of new homes fell by 11.7 percent in October to a seasonally adjusted annual rate of 519,000 units. That was the poorest showing since last April when housing construction had plunged to 477,000 units, the lowest level on records that date back to 1959.