Home resales rise, prices fall

WASHINGTON - Sales of previously owned homes in the United States rose in May from the lowest level in at least nine years as a slide in prices lured some buyers into the market.

Resales increased 2 percent to a 4.99 million annual rate, higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said yesterday. Separately, the Commerce Department said the economy grew at a 1 percent annual pace in the first quarter, capping the weakest six-month expansion in five years.

The supply of homes for sale remains about twice the level representing a stable market, according to the NAR, and figures have yet to show any sign of sustained sales gains. Federal Reserve officials said Wednesday the housing contraction will likely damp growth into 2009.

"It's going to be a long, painful end" to the housing industry's decline, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Penn. "Prices have come down enough that affordability has been restored in some markets and we're starting to see some buyers come back in."

The median price of existing homes dropped 6.3 percent from May last year to $208,600, the NAR said. Last year's nationwide drop in prices of single-family homes was probably the first since the 1930s, according to the group.

Buyers are now facing a dilemma. While prices are forecast to keep falling, mortgage rates are rising as concern about inflation mounts.

"The rising interest rates are a trigger to create buyer urgency," said Ken Baris, president of Jordan Baris Inc. Realtors in West Orange, N.J. "Within the last six weeks we've seen a nice pop in the market."

The average rate on a 30-year fixed mortgage was 6.3 percent Wednesday, up from 5.79 percent at the start of the year, according to Bankrate.com.

Economists forecast home resales would rise to a 4.95 million pace, according to the median of 72 projections in a Bloomberg News survey. April's level matched a record low. The group's total figures, which include single-family homes and properties such as condominiums, date from 1999.

"I think we are close to a bottom," said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. "Sales will probably fall another 5 or 10 percent before bottoming by the end of the summer. It will be a feeble recovery, we will kind of bounce along the bottom."

Resales rose in three of four regions, led by a 5.5 percent gain in the Midwest. Purchases rose 4.6 percent in the Northeast and 2 percent in the West. Sales dropped 0.5 percent in the South.

Commerce's revised gain in gross domestic product was up from the preliminary estimate last month of 0.9 percent. A decline in residential construction subtracted 1.1 percentage points from growth in the period.