An April decline in home sales has exposed weakness in what had been a scorching housing market and may point to further deterioration in the economy.
The National Association of Realtors reported that April sales of existing homes fell 4.2%, to an annual pace of 5.25 million units. Its survey results were released Friday, the day after the Census Bureau reported that sales of new homes fell 9.5% in April, to an annual rate of 894,000 the steepest drop in four years.
David Lereah, the chief economist for the Realtors association, said the numbers raise concerns that housing activity might have peaked in March and that the economy, which he called weak, may be hurting the market.
If households are not confident about their financial prospects, youre going to see a drop in housing activity, and thats what the report reflects, Mr. Lereah said in an interview. If the housing sector, which was one of the only healthy sectors, begins to weaken, all bets are off and the economy may slip into an all-out recession though he said he does not think that will happen.
There are other worrisome numbers: Gross domestic product rose by just 1.3% in the first quarter, employment fell by 223,000 jobs in April triple the number of jobs lost in March and the unemployment rate was 4.3% in March, versus 4.5% in April. Mortgage applications fell 15.2% in the week that ended May 18, according to the Mortgage Bankers Association.
Nonetheless, economists at mortgage-related firms say they are optimistic about the rest of 2001, which the Mortgage Bankers Association has said could set a record in loan production.
Robert Van Order, the chief economist at Freddie Mac, said he was not surprised that the housing market has softened. It was bound to slow down eventually, he said. And he said he still expects 2001 to be the second- or third-strongest year ever in mortgage originations.
Mr. Van Order further noted that this has been a banner year for housing value: Prices have gone up faster than inflation, and new houses are bigger and better than ever.
Fannie Mae chief economist David Berson argued that there were exceedingly slim odds that the April numbers would beat Marchs. Far from bad news, he said, the latest housing statistics still indicate a strong market that will produce a near-record year.
If we had 5.2 million for the rest of the year, everybody in the industry would be thrilled to death, Mr. Berson said. If this is a correction, it is not much of one. He predicted that the market will have more declines in the months ahead, but that they will simply reflect the slowing of the economy and will not reach alarming levels.
Dale Jacobson, a survey statistician with the Census Bureau, also cautioned against reading too much into the April dips. Month-to-month changes do not mean much in the long term, he said.
Mr. Lereah at the Realtors group, however, said the report should suggest to the Fed that it needs to continue reducing short-term interest rates.
Though he said he agreed that the purchase markets strong pace could not have been sustained, Mr. Lereah said households need to be confident about their finances if they are to buy homes and other big-ticket items and in turn keep the economy afloat.
Erick Bergquist and Tommy Fernandez contributed to this article.