Housing market slump seen stretching further

The latest report, the National Association of Realtors' pending home sales index, slipped by 4.7 percent in May to the third-lowest reading on record. The decline "suggests we are not out of the woods by any means," said the trade group's chief economist Lawrence Yun.

The bad news came as the regulator for Fannie Mae and Freddie Mac tried to reassure investors that an accounting rule change wouldn't force the government-chartered mortgage finance companies to raise tens of billions in capital to offset losses.

With more negative data about the housing market continuing to emerge as the economy weakens and job losses accelerate, economists are reluctant to say the worst is over.

"Even if housing market activity does manage to bottom out later this year, it is likely that any recovery would be exceedingly slow," Jeffrey Lacker, president of the Federal Reserve Bank of Richmond said in a speech in Washington.

While home sales are likely to fall to their lowest point late this year or early next year, any recovery is likely to be weak through at least 2010, said Mark Vitner, senior economist with Wachovia Corp.

Meanwhile, prices shouldn't hit bottom for another year at the earliest, Vitner said, since the housing market is glutted with unsold new homes and foreclosed properties.

Making matters worse, rates on 30-year mortgages have been above 6 percent since late May, leading to a steep decline in new applications.

The Realtors' seasonally adjusted index of pending sales for existing homes fell 4.7 percent to 84.7 from an upwardly revised April reading of 88.9. The index was 14 percent below year-ago levels. Sales are considered pending when the seller has accepted an offer, but the deal has not yet closed.

Wall Street economists surveyed by Thomson/IFR had predicted the index would come in at 87. The index, which sunk to a record low of 83 in March, stood at 98.5 in May 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.