US subprime crisis hits house sales

US subprime crisis hits house sales
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: May 25 2007 18:02 | Last updated: May 25 2007 18:02


The crisis in the high-risk mortgage market made it harder for Americans to sell their homes last month, according to real estate agents.

Sales of existing homes fell to their lowest level in three years with a drop of 2.6 per cent in April, data from the National Association of Realtors indicated on Friday.

The association said home purchases were being held back because subprime lenders were applying tighter standards following the collapse of the high-risk mortgage market.

The Federal Reserve does not expect the crisis to have a lasting impact on the housing market, despite increasing signs of distress among high-risk borrowers and the collapse of leading subprime lenders.

Gary Bigg, an economist at Bank Of America, said: “Prospects for future home sales remain mixed as the problems in the subprime market and tighter credit standards are partially offset by improving housing affordability.”

Mr Bigg said he was expecting a gradual recovery in the market for existing homes following signs this week that sales by developers of new homes were picking up after an 18-month slump.

Alan Ruskin, an analyst at RBS, said: “The latest numbers do not themselves negate the perception of somewhat better transaction trends from the new home sales. I still think housing demand has put in a bottom.”

The fall in sales of existing homes last month was widespread across the country and dragged the annual rate of home sales to below 6m units, compared with expectations that purchases would hold steady at a rate of about 6.15m homes.

Mark Zandi, an economist at Moody’s, said the increase in inventory was “the most disconcerting” element of the figures.

The slowdown in purchases drove the excess supply of single-family homes on the market up to about eight months’ worth of sales from seven months’ supply in March. The supply of condominiums also climbed to 9.5 months’ worth of sales from 8.8 months.

Economists are awaiting figures that give a fuller picture of how the housing market has performed during the crucial spring selling season when most homes are bought.