Fewer people purchased previously occupied homes in May, lowering sales to their weakest point of the year.
Home sales sank 3.8 percent last month to a seasonally adjusted annual rate of 4.81 million homes, the National Association of Realtors said Tuesday. Economists say that’s far below the 6 million homes per year sold in healthy housing markets.
Since the housing boom went bust in 2006, sales have fallen in four of the past five years. Analysts said they expect sales to level off at about 5 million per year. That’s not much better than the 4.91 million homes sold last year, the worst showing in 13 years.
The depressed housing market has weighed on the broader economy. Declining home prices have kept people from selling their houses and moving to find jobs in growing areas. They have also made people feel less wealthy. That has reduced consumer spending, which drives 70 percent of economic activity.
The housing market has struggled because fewer first-time buyers are entering the market. The number of first-timers ticked down to 35 percent of sales last month. Typically, they drive half of sales in healthy markets.
First-time buyers are critical because they improve their properties and invest in their communities, a combination that raises home values. And their purchases allow sellers to move up to pricier homes.
Instead, the market has been saturated with foreclosures, which force prices down. Sales of homes at risk of foreclosure fell in May. But they still made up 31 percent of all purchases. And a large number of pending foreclosures are backlogged in the courts or held up by state and federal probes into troubled foreclosure practices by lenders.
Until the glut of foreclosures are cleared and people think it’s a safe time to buy a house, “it is unlikely that home prices can recover on a sustained basis,” said Steven Wood, chief economist at Insight Economics.
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 that home prices will keep falling.
Investors are filling some of the void. They are spending cash to scoop up deeply discounted homes in hard-hit areas of Phoenix, Las Vegas and Tampa. Last month, investors accounted for 19 percent of all sales.
All the while, previously occupied homes are cheap and in great supply.
Re-sold homes are a bargain compared to new homes. The median sales price for a previously occupied home in May was $166,500. The median price of a new home is nearly 31 percent higher than the median price for a re-sale, or twice the normal markup.
The gap is largely because of the flood of foreclosures or short sales — when the lender accepts less than what is owed on the mortgage. A record 1 million homes were lost to foreclosures last year and foreclosure tracker RealtyTrac Inc. expects 1.2 million more will be lost this year.
Another problem for the housing market is the glut of unsold homes. In May, the supply fell slightly to 3.72 million homes. At last month’s sales pace, it would take more than 9 months to clear those homes. Homes priced for less than $100,000 are selling briskly but more expensive homes are having trouble finding buyers. Analysts say a healthy supply can be cleared in six months.
The situation is much worse when taking into account the “shadow inventory” of homes, economists say. These are homes that are in the early stages of the foreclosure process but, because of backlogged courts or the government probes, have not hit the market for re-sale.
Sales fell across most regions of the country. In May, sales dropped 6.4 percent in the Midwest, 5.1 percent in the South and 2.5 percent in the Northeast. There was no change in the West.