Existing home sales fall for fifth month

WASHINGTON --Sales of existing homes fell for a fifth consecutive month in January as the once-sizzling housing market cooled further.

The National Association of Realtors reported Tuesday that sales of previously owned homes dropped by 2.8 percent compared to a seasonally adjusted annual rate of 6.56 million units, the slowest pace in two years.

Even with the slowdown in sales, home prices held steady with the median price in January at $211,000, unchanged from the December level.

Sales of both existing and new homes set records for the fifth straight year in 2005, but analysts believe that sales of existing homes will fall by around 5 percent this year as rising interest rates cut into demand.

The drop in sales of existing homes followed a 5 percent decline in sales of new homes in January as that segment of the market cooled as well. Both declines were bigger than expected and occurred even though the weather in January was the mildest in more than 100 years.

Analysts saw the declines in both existing and new home sales as strong signals that the once-hot housing market has begun to cool.

Sales were down in all regions of the country except the South, which saw a 2.6 percent increase.

The biggest sales decline last month was a 10 percent drop in the Northeast. Sales were down 7.7 percent in the Midwest and fell 3.5 percent in the West.

The five consecutive declines in existing home sales represented the longest stretch of weakness since a stretch of six monthly declines from July through December of 1999.

The inventory of unsold homes rose by 2.4 percent at the end of January to 2.91 million existing homes available for sale, which represents a 5.3-month supply of homes at the January sales pace.

Analysts said the rising supply of unsold homes will likely slow the rapid increase in home prices of recent years. Instead of double-digit gains, Lawrence Yun, senior economist at the Realtors, said he was looking for a more moderate rise of 5 percent in prices this year.

Sales have suffered the most in high-priced parts of the country in California, Florida and the Northeast, which are more sensitive to increases in mortgage rates.

The South, which was battered by last year's Gulf Coast hurricanes, is seeing a rebound in some areas, helped by people looking for homes to replace ones damaged by the storms. The Realtors said that home sales in New Orleans were up 40 percent in January with Baton Rouge, La., Mobile, Ala., and Houston seeing big gains in home sales as well.

But for the country as a whole, Yun forecast that sales will probably decline by 5 percent from last year's record pace of 7.075 million units.

"The housing market is shifting away from the record-breaking pace of last year to a more sustainable pace," Yun said.

He predicted medium-priced areas of the country with strong job growth such as Idaho and Utah would still see sales gains this year.

The big concern has been whether the slowdown in sales would cause home prices to come crashing back to earth. But most analysts believe the housing market is headed for a slowdown but not a crash.