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Housing Slump Deepens

Hammered by rising interest rates, tougher credit standards and persistently low home prices, the broad U.S. housing market weakened still further during June, with sales of existing homes taking an unexpectedly steep 3.8% dive, falling to their lowest level in more than four years.

Sales of existing homes, which account for more than 70% of all U.S. housing activity, fell to a seasonally adjusted annual rate of 5.75 million, down from 5.98 million in May, the weakness intensifying after a smaller 0.5% dip in April, the National Association of Realtors (NAR) reported.

Underlining the depth and breadth of the slowdown, resales, which are often lower-priced, older homes that appeal to first-time buyers, have fallen 13.9% over the past four months alone, from a level of 6.68 million units in February.

June sales of existing homes were off an unnerving 18.7% from the relatively recent high of 7.08 million units recorded in 2005 at the zenith of a housing boom which has since burst.

"Home buyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," said Lawrence Yun, NAR senior economist. "Mortgage interest rates have risen recently, and tightening lending standards are continuing to hamper sales." And contemplating an iffy economic outlook, buyers are taking a wait-and-see attitude, he said. "Although general buying conditions remain favorable for long-term home buyers, it appears some buyers are looking for more signs of stability before they have enough confidence to make an offer."

Also hit hard was the highly volatile market for costly new homes, where sales skidded down a deeper than expected 6.6% in June, weakening further from a 2.2% drop in May, the Commerce Department reported. New home sales fell to a seasonally adjusted level of 834,000, only slightly above a 13-month low of 830,000 units in March. New home sales have now plunged 22.3% over the past 12 months, from a level of 1.07 million units last June.

The one bright spot, but only up to a point, was housing starts, which improved by 2.3% to a seasonal level of 1.47 million units. But wrapping that silver lining was yet another cloud, as the forward-looking indicator of building permits sought by cash-constrained developers fell by 7.5% in June, to a seasonal 1.41 million units. The level of building permits has now fallen 25.2% from a year-ago level of 1.88 million units.

Anxious about falling home prices, which make it difficult for them to make money, and with a surplus of unsold homes on the market, home builders are growing increasingly fretful, and a widely watched gauge of home builder confidence was at its lowest level in July since 1991. The Builder Confidence Index compiled by Wells Fargo Bank and the National Association of Home Builders fell four points to a level of 24.

"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period," said David Seiders, chief economist of the builders' trade group. "Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers."

HOUSING BY REGION
Month-To-Month % Change, June 2007

EXISTING HOME SALES HOUSING STARTS NEW HOME SALES
Source: U.S. Department of Commerce and National Association of Realtors
Northeast -7.3% -2.4% -27.1%
Midwest -2.8 -3.7 -17.1
South -1.7 2.4 7.6
West -6.8 9.0 -22.5


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