WASHINGTON -- Sales of previously owned homes slumped in June for the second straight month as buyers backed off in all regions of the country, the National Association of Realtors reported yesterday.
Analysts said the report shows that rising long-term interest rates are taking a toll on the housing market, and they predicted gradual declines in sales and construction during the second half of the year.
The realtors group said existing home sales fell 3.6% in June to a seasonally adjusted annual rate of 3.96 million units, marking the fourth monthly decease this year.
"This is more evidence that interest rates do count," said Robert Dederick, chief economist of the Northern Trust Co. in Chicago.
Lyle GramIey, consulting economist with the Mortgage Bankers Association, concurred. "From here on in, existing home sales, new home sales, and housing starts will drop very gradually," he said.
Economists said higher interest rates will stifle the housing market but won't devastate it. "I look for a cooling in the housing market, but I expect a reasonable amount of activity will continue," said David Berson, chief economist of the Federal National Mortgage Association.
Mortgage rates actually fell slightly in June but are expected to resume their upward trend, Berson said. Average 30-year fixed-rate mortgages inched down to about 8.4% in June from 8.6% in May. But preliminary figures show such mortgages will probably avenge about 8.65% in July, he said.
The realtors group said sales in the South fell 6.4% to a 1.47 million rate, sales in the Northeast dropped 3.1% to 630,000, the West fell 2.4% to 830,000, and the Midwest fell 1% to 1.03 million.
Existing home sales in June were up 7% compared with a year ago, according to yesterday's report.
In addition, the realtors group reported that home prices rose in June. The average price for an existing house increased to $141,000 from $136,600 in May, and prices increased in all regions.
Despite rising prices and mortgage rates, economists generally still say housing affordability remains favorable by historical standards. This and a growing economy, including a strong labor market, will keep the housing market from slumping drastically, analysts said.
"Current affordability conditions are still at one of the best levels of all times and continue to encourage purchases," said Robert Elrod, president of the realtors group.
Economists' views are mixed regarding whether interest rates will stabilize, go higher, or drift down slightly by the end of the year. Nonetheless, economists say the gains in rates to date are enough to prompt home sales to decline further.
For example, Berson said mortgage rates could fall slightly between now and the end of the year, but he still expects sales to slip.
Mark Lasky, senior economist at DRI/McGraw-Hill, predicted that mortgage rates will peak in the fourth quarter and drift downward next year. He does not expect the housing market to contribute to overall growth in the economy next year.
The new single-family home sales report for June will be released by the Commerce Department next Tuesday. Sales rose 4.2% in May to reach a 738,000 rate, according to the last report.
Analysts were reluctant to predict with much confidence what new home sales will do in June, but they expect that sales will begin trending down soon. They said that in the coming months, new home sales and housing starts will probably follow the same pattern as existing home sales.