The pace of existing home sales edged up in November from a record low, according to a report on Monday that offered some tentative signs of stabilization in the still-ailing housing market.
Sales of previously owned homes rose 0.4 percent to a 5 million-unit annual rate, the first increase in nine months, the National Association of Realtors said.
Economists and investors breathed a small sigh of relief that the glut of unsold homes was smaller than a month earlier, dipping to 10.3 months' supply at November's sales pace from 10.7 in October, as falling prices spurred stronger demand.
Wall Street economists had expected home resales to hold steady at October's previously reported 4.97 million-unit pace. October sales were revised up to a 4.98 million unit rate, still a record low.
The data initially helped stocks trim losses, while weighing on prices for U.S. government bonds. However, the moves were short-lived and at midday the blue chip Dow Jones industrial index was down about 100 points.
The second consecutive month of steady sales seemingly hints at a possible bottom in housing demand, said Haseeb Ahmed, an economist with JPMorgan in New York.
However, Ahmed said the stability was quite possibly temporary.
While the inventory of unsold homes moved down, it remained elevated at 4.27 million homes as the ongoing turmoil in the credit markets thinned the pool of potential buyers, suggesting it may be some time before the market regains solid footing.
Despite the good news in this report, we could just be in the eye of the storm, as a significant number of mortgages reset (to higher interest rates) early in 2008, (which) will likely increase delinquencies and foreclosures, driving prices lower and pushing buyers away, said Benjamin Reitzes, an economist with BMO Capital Markets.
This could get even worse before it gets better.
REALTORS LOOK TO FED
Economists and investors are eager for signs the housing market is stabilizing after a tumultuous year that saw credit markets freeze up in the wake of rising mortgage defaults.
Over the past year, sales of existing homes have plummeted by 20 percent.
The Realtors' group urged the U.S. Federal Reserve to slash interest rates by as much as three-quarters of a percentage point in January as a way to embolden home buyers. Most economists expect a quarter-point cut at the central bank's meeting on January 29-30.
The Federal Reserve could greatly help the housing market by making a one-time, large interest rate cut instead of a series of smaller reductions, said Lawrence Yun, chief economist for the trade group. Knowing the Fed may cut rates, people are waiting and waiting to enter the market.
The Fed already has lowered its key interest rate three times since mid-September by a cumulative one percentage point in an effort to insulate the broader economy from the housing woes.
The national median existing home price for November fell 3.3 percent from a year earlier to $210,200. That was the fifth-largest decline on record. October's was the biggest.
A separate report on Friday showed that sales of new homes slumped 9 percent in November to the lowest rate in more than 12 years. Taken together, the reports suggested that it may be some time before the housing market rebounds.
The headwinds of slowing employment growth, high inventories and tighter credit availability will prevent any recovery in existing home sales from occurring until the end of 2008, said Gary Bigg, an economist with Bank of America in New York.
(Editing by Andrea Ricci)