May sales of previously owned homes dip 3.8 percent

Sales of previously owned homes nationally fell 3.8 percent in May from April's levels, as rising gasoline prices and severe weather in the South and Midwest took their toll on closings, the National Association of Realtors said Tuesday.

Sales were down 15.3 percent from May 2010, when the market was buoyed by a wave of closings related to the April 30 expiration of the federal tax credit.

In the eight-county Philadelphia region, sales rose 10.3 percent last month over April's levels, but they were 27 percent lower than in May 2010, numbers also elevated because of the expiring tax credit, according to Prudential Fox & Roach's HomExpert Market Report, which uses data from Trend Multiple Listing Service.

Though the Realtors' group blamed the weather and gasoline prices, IHS Global Insight Inc. economist Patrick Newport said other housing indicators pointed to weak demand as the main reason volume sagged at the start of the peak sales season.

Tight credit and falling equity levels also took a toll on sales, economists said. Homeowner equity in the typical U.S. home has fallen from 61 percent in 2001 to 38 percent today, according to the Federal Reserve Bank.

Further credit tightening by lenders is anticipated as efforts to meet mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act could require most home buyers to come up with 20 percent down payments before they can get mortgages.

Leaders of the housing, construction, and lending industries say such a requirement could erase any gains in real estate's recovery and delay it further. Millions of low- and moderate-income buyers could be shut out of the market if large down payments are required, the industry leaders say.

In May, median prices fell 4.6 percent from the same month a year ago. Regionally, median prices fell 1.4 percent, HomExpert reported.

"Unfortunately, credit conditions are unlikely to loosen soon," Newport said. "With house prices falling, lenders are not likely to lower their lending standards anytime soon."

In addition, Freddie Mac and Fannie Mae will lower the maximum conforming-loan limit from $729,750 to $625,500 Oct. 1. As a result, buyers in high-cost areas will face higher borrowing rates, Newport said.

Fixed interest rates for mortgages have been falling over the last several weeks as the economy has shown signs of weakness. The 30-year rate was 4.64 percent last week, Freddie Mac said.

Tuesday's housing report "was a weak report that will likely be greeted as being OK because the decline was less than many feared," said Joel L. Naroff, of Naroff Economic Advisers in Holland, Bucks County. "Still, the housing market is going nowhere fast. The recovery will have to proceed without the help of housing, which is going to make it more difficult to really ramp up growth for any extended period of time."

Distressed homes - typically sold at a discount of about 20 percent - accounted for 31 percent of sales in May, down from 37 percent in April. They were 31 percent in May 2010, the Realtors' group reported.

First-time buyers purchased 35 percent of homes in May, down from 36 percent in April. They were 46 percent in May 2010, when the tax credit was in place, the group said.

Investors accounted for 19 percent of purchase activity in May compared with 20 percent in April. They were 14 percent in May 2010.