Housing market weakens for second month

February 27, 2010 at 12:00a.m.

WASHINGTON (AP) — Sales of previously owned homes plunged in January to their lowest level since summer, providing fresh evidence that high unemployment and tight lending standards are outweighing the government’s attempts to prop up the market.

The results, the weakest since June, were far worse than forecast and suggest the housing recovery will sputter without government support. The government has spent billions to keep mortgage rates low and give buyers tax breaks, but both programs are set to end this spring.

“Most of the improvement that we’ve seen in housing over the past year has been tied to some sort of stimulus program,” said Wells Fargo economist Mark Vitner. “Now that we’re seeing those programs wind down, we’re seeing that housing is quite a bit weaker than many people had thought.”

Consumers are nervous about the shaky economy and face tough hurdles in trying to qualify for home loans, said Danny Frank, an agent with Keller-Williams Realty near Houston, Texas.

“People are scared right now,” he said.

The National Association of Realtors said Friday that home sales fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December. Economists expected a slight increase to a rate of 5.5 million.

Home sales have been sluggish this winter because the deadline for a tax credit for first-time buyers was extended. It had been set to expire on Nov. 30, causing sales to surge last fall. Then Congress extended the deadline until April 30 and expanded it to existing homeowners who move.

Analysts say the extended credit isn’t having much impact so far.

“With a few more months before the next round is scheduled to end, buyers have been taking their time,” wrote Joel Naroff, chief economist with Naroff Economic Advisors.

The housing report was another sign that consumers still aren’t feeling comfortable making sizable purchases, as jobs remain scarce. Weak consumer-spending is a key reason why economic growth is expected to be feeble this year.

“There’s a lot of underlying weakness in the world economy and national economy,” said Bill Weaver, real-estate professor at the University of Central Florida. “That’s not the general economic environment in which people decide to go out and spend $200,000 on a house.”

Home sales are still up nearly 12 percent from the bottom, but are down 30 percent from their peak more than four years ago.

Last month, sales declined throughout the country, falling the most — nearly 11 percent — in the Northeast. Sales fell by about 7 percent in the South and Midwest and by more than 5 percent in the West.

Nationally, more than a quarter of buyers last month paid all cash, the Realtors group said. In Orlando, Coldwell Banker agent Cindy Brads says there is tremendous interest among buyers for homes priced at $150,000 and under. For anything below $60,000, it’s not strange to get 20 offers for a property, she said, with a large percentage coming from investors.

Nationwide, the median sales price was $164,700, unchanged from a year earlier and down about 3 percent from December. The inventory of unsold homes on the market was down slightly. There’s a 7.8 month supply at the current sales pace, up from a recent low of 6.5 months in November.