Sales of previously owned U.S. homes suffered a record drop last month as the boost from a popular tax credit waned, raising doubts the housing market recovery can be sustained without government support.
The National Association of Realtors said on Monday that existing home sales fell 16.7 percent in December to an annual rate of 5.45 million units.
It was the sharpest decline on records dating to 1968 and the slowest sales pace since August. Analysts had expected a less severe drop to a 5.90 million unit pace.
Today's numbers clearly indicate that the rebound in housing demand observed so far has been largely supported by government programs and therefore that the recovery is far from becoming self-sustaining, said Anna Piretti, an economist at BNP Paribas in New York.
There were, however, some encouraging signs, with the median home price rising in December in the first year-over-year gain since August 2007 and a decline in the inventory of homes available for sale.
U.S. stocks brushed aside the data, rising after three days of losses as signs that Ben Bernanke would win Senate backing for a second term as Federal Reserve chairman eased anxiety among investors.
The rise in stocks clipped U.S. government bonds' safe haven appeal and sent debt prices lower. The U.S. dollar rose against the yen.
Housing has been recovering from a three-year slump, driven by a tax credit for first-time buyers and low mortgage rates. The tax credit, which had been scheduled to end in November, was expanded and extended until June.
Prospective home buyers rushed through sales to qualify for the credit before it expired, creating a surge in November. But there was a lull in December once buyers saw they had an extra seven months to take advantage of the benefit.
Analysts said the extension should boost sales in months ahead but saw risks if it were phased out. Data ranging from pending home sales to builders sentiment have raised concerns that the housing market, which has been at the core of the worst U.S. economic downturn since the 1930s, might be slipping again.
We're becoming increasingly concerned that the housing recovery will falter once it is removed, said Paul Dales, U.S. economist at Capital Economics in Toronto.
WILL RECOVERY FALTER?
According to the Realtors group, first-time home buyers accounted for 43 percent of sales in December, down from 51 percent the previous month. Distressed transactions made up 32 percent of the sales.
Sales of previously owned single-family homes, the largest segment of the housing market, tumbled 16.8 percent last month. Sales of existing condominiums and co-ops dropped 15.4 percent.
Sales could improve again in the near term as a result of the extension of the homebuyer tax credit and what we expect to be a near-term return to job growth, said Abiel Reinhart, an economist at JPMorgan in New York.
By the middle of the year, however, the housing market will run into some more headwinds as the tax credit expires and mortgage rates probably rise.
Mortgage rates have been depressed by the Federal Reserve's program to buy mortgage-related securities in the market. The U.S. central bank is scheduled to end the program in March.
Existing home sales for the whole of 2009 rose 4.9 percent, the Realtors group said. Prices fell 12.4 percent, which the trade group said was probably the largest annual drop since the Great Depression.
But for the month of December the median home price rose 1.5 percent from a year earlier to $178,300, the largest rise since May 2006.
And in another bright spot, the inventory of homes available for sale last month fell to 3.29 million units, the lowest since March 2006. At December's sales pace, that represented 7.2 months' worth of supply.
Analysts argue that reducing the supply of homes for sale on the market is critical for the sector's recovery.
Sales fell last month in all four regions of the country.
(Writing by Lucia Mutikani; Editing by Andrew Hay and Leslie Adler)