Transcripts

The Housing Market Stalls

SUSIE GHARIB: A U-turn on Wall Street today as stocks reversed gains over jitters about the impact of sub-prime mortgages on financial firms. The Dow slipped eight points after being up as much as 120 points and the NASDAQ lost 11. Another concern for investors, a new report today showing more weakness in the housing market. The National Association of Realtors reported that sales of existing homes dropped for the third straight month. The median price dropped as the supply of unsold homes surged to its highest level in 15 years. Stephanie Dhue reports.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the end of May, there were nearly 4.5 million existing homes for sale. The National Association of Realtors says at the current pace of sales, it will take nearly nine months to sell those homes. That's putting pressure on prices. The national median existing home price is 2 percent lower than a year ago. Still, the group's economist Lawrence Yun expects a pick up in sales that could stop prices from sliding.

LAWRENCE YUN, SENIOR ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: We anticipate that given the recent rise in mortgage purchase applications, that the third quarter sales would be higher than the second quarter home sales and with rising sales, they would begin to thin out inventory and with inventory declining, prices will begin to firm up.

DHUE: Fannie Mae economist David Berson disagrees. He expects home sales to fall further this year and says mortgage purchase applications may be telling a weaker story.

DAVID BERSON, CHIEF ECONOMIST, FANNIE MAE: Because lenders have tightened credit standards, it may be that borrowers have had to apply in multiple places in order to get a loan. So again, it doesn't reflect the strength in the housing market.

DHUE: While overall sales are weak, some regions are showing signs of strength. Sales jumped 5.8 percent in the northeast and rose 0.7 of a percent in the Midwest, but fell 0.8 of a percent in the west and 3.4 percent in the south with all areas lower off a year ago. George Washington University Finance Professor Richard Green expects prices to continue under pressure as long as there is more than a six month supply of homes for sale.

RICHARD GREEN, FINANCE PROF., GEORGE WASHINGTON UNIVERSITY: If inventories are greater than six months, you can expect to see a price decline. And when I say price decline, I should caution that I mean in inflation-adjusted terms. So the purchasing power price of a house will decline. That could mean that house prices remain flat in terms of what we observe, but their real value is falling.

DHUE: New home sales data out tomorrow is also expected to show weakness. Many economists expect higher mortgage rates, tighter lending standards and record inventories will keep home sales under pressure into next year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.