The Wall Street Journal

23 November  2010

Home resales dipped in October after two months of increases, with a weak economy and worries about flaws in foreclosure documents keeping buyers away.

Sales of previously occupied homes decreased by 2.2% to a seasonally adjusted annual rate of 4.43 million, the National Association of Realtors said Tuesday. Economists surveyed by Dow Jones Newswires had expected home sales to drop 0.7% to an annual rate of 4.50 million.

The decrease in home sales followed a pair of monthly increases from the lowest sales rate in 15 years. September resales rose an unrevised 10% to a rate of 4.53 million. In August, resales climbed 7.3%.

The U.S. housing market is struggling to recover on its own without government assistance. A tax credit for first-time buyers propped up sales earlier in the year, but sales plunged after it ended, and home sales had their slowest summer in over a decade.

While mortgage rates are very low and home prices have dropped, consumers are reluctant to make major purchases because of the weak economic recovery and near double-digit unemployment.

Sales of previously occupied homes are well below a year ago, when the government was still providing tax credits to boost sales. Resales in October were down 25.9% from a 5.98 million-unit annual pace in October 2009.

Lawrence Yun, the chief economist at NAR, predicted that about 4.8 million homes will be sold this year, down 6.6% from last year. A healthy level of home sales, would be an annualized rate of just over 5 million home sales, he said, adding, “We are not there yet.”

This fall, a new problem has emerged for the housing market. Some buyers have been avoiding foreclosed properties amid revelations that several banks made errors on court documents used to evict homeowners.

Real estate agents say some prospective buyers are now worried that former owners will sue to reclaim their former homes. And even some buyers who want to buy foreclosed homes have seen their purchases stall.

Many economists, however, predict that the impact of the foreclosure-document crisis will be only temporary. They predict banks will fix the documents quickly and continue with the foreclosure process.

While foreclosures have helped pull down prices and enticed some buyers, others have been waiting for a better deal amid predictions that prices will fall further.

The Realtors report Tuesday said the median price for an existing home was $170,500 in October. That’s down 0.9% from $172,000 in October 2009.

The inventory of previously owned homes listed for sale, meanwhile, fell by 3.4% at the end of October to 3.86 million available for sale. That represented a 10.5-month supply at the current sales pace, compared with a 10.6-month supply in September.

Plus, a big supply of unlisted bank-owned homes and potential foreclosures looms on the horizon. That “shadow inventory” has risen to 2.1 million homes in August, up 10% from a year earlier, according to real estate research firm CoreLogic Inc. That’s about eight additional months of supply.

Some analysts warn there are even more distressed properties coming. Laurie Goodman, senior managing director at Amherst Securities Group, has warned that as many as 7 million homes could end up in banks’ hands unless more aggressive modification regimes are put in place.

Regionally in October, existing home sales fell 3.4% in the South compared with a month earlier. They fell 1.9% in the West, 1.3% in the Northeast and 1.1% in the Midwest.