Economy Watch: U.S. Home Sales Head for the Cellar

By Dees Stribling, Contributing Editor

The National Association of Realtors reported on Tuesday that existing home sales dropped 3.8 percent in May compared with April, to the lowest level of 2011 thus far. The annualized rate of sales during May was 4.81 million units, and April’s annualized rate was revised downward to 5 million units. The pace was 5.68 million in May 2010, but the comparison is hardly worthwhile, since that month buyers were eager to lock in the homebuyer tax credit.

The inventory of houses for sale dropped slightly in May to 3.72 million units, which according to NAR calculations is a 9.3-month supply, still bloated compared with a six-month supply, which is generally regarded as a healthy amount. Also, the NAR reports that the median sales price of a U.S. home was $166,500 during the first quarter of this year, down from $174,500 during the same period in 2010.

Always one to put a happy face on things, NAR Chief Economist Lawrence Yun posits that the recent reversals in oil prices are likely to mitigate the impact of a sluggish economy on home sales going forward. “The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year,” he predicts.

Too little too late?

Early this week HUD approved 27 states and Puerto Rico for the Emergency Homeowners’ Loan Program (EHLP–the government clearly missed an acronym opportunity), which was created by the Dodd-Frank financial regulatory overhaul last year. The goal of the program is to help unemployed homeowners pay their mortgages and thus prevent foreclosures.

Among other qualifications, according to HUD, borrowers must have had incomes of less than $75,000 or 120 percent of area median income “previous to loss of income resulting from involuntary unemployment, underemployment, and/or medical emergency/serious injury.” Also, the foreclosure wolves must be at the door, though federal verbage on the matter isn’t quite as metaphorical: “Applicant must have received notification of their lender’s/servicer’s intention to foreclose on their mortgage as a result of the delinquency, and must also certify to the likelihood that their mortgage will be foreclosed upon.”

The program is expected to aid 30,000 households with zero-interest loans of up to $50,000. The window for approval of the loans is narrow, since the government can make new loans under the program only until Sept. 30. The Obama administration had originally planned to kick off EHLP toward the end of 2010, but much complicated haggling between HUD, various state agencies and the nonprofit counseling network NeighborWorks USA derailed that timetable.

Greek PM survives to fight for austerity

Prime Minister George Papandreou survived a vote of no confidence by the Greek parliament early on Wednesday (Tuesday in North America), which probably means that the Greeks will get more money from their bailout sources, but will also get more austerity in the bargain. The Greek government has until July 3 to approve tightened austerity measures, which the prime minister says he will push through, before it can get its next bailout fix of 110 billion euros ($157 billion).

The vote came after the closing of U.S. stock exchanges, but seemed to have a positive effect on European equities markets. Those gains might run out of steam, however, if it seems like the full Greek parliament isn’t willing to pass new austerity measures next week.

Greeks or no Greeks, Wall Street was in fine fettle on Tuesday, with the Dow Jones Industrial Average gaining 109.63 points, or 0.91 percent. The S&P 500 was up 1.34 percent, and the Nasdaq advanced 2.19 percent.