Sales of existing homes slide to lowest level in four years

WASHINGTON - Sales of existing homes fell for a third straight month in May, dropping to the lowest level in four years, an industry group reported yesterday. It also said the median sales price declined for a record 10th consecutive month.

Moreover, the inventory of unsold homes shot up to the highest level in 15 years, meaning more downward pressure on prices in the months ahead until the inventory glut is reduced.

Sales fell 0.3 percent in May to a seasonally adjusted annual rate of 5.99 million units, the National Association of Realtors said. Sales now stand 10.3 percent below where they were a year ago.

The median price of an existing home sold last month fell to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch on record.

Economists predicted home prices likely would decline further in the months ahead because of continued difficulty in reducing the stockpile of unsold homes, which rose 5 percent in May to 4.43 million units. That was an 8.9 months' supply at the May sales pace, a level that had not been seen since July 1992, the last time the country went through a serious housing slump.

"The only way we are going to chip away at this Mount Everest-size pile of inventory is by price cuts - and so far, sellers haven't been aggressive enough," said Mike Larson, a real estate analyst at Weiss Research. "Don't look for a lasting bottom in the housing market anytime soon."

The sales decline was led by a 3.4 percent drop in the South. Sales also fell in the West, dropping 0.8 percent. But sales rose 5.8 percent in the Northeast and 0.7 percent in the Midwest.

Economists predicted further sales declines in coming months as housing is affected by recent troubles with subprime mortgages, which have caused banks and other lenders to raise their qualification standards, making it harder for potential buyers to obtain financing. Rising mortgage defaults also mean more homes dumped on a glutted market.

Lawrence Yun, senior economist for the Realtors' group, noted that household formation had slowed. He said that implied many people had decided to put off buying a home and were doubling up in rental units or moving back home with parents.

Trimming its forecasts, the Realtors' group now expects existing-home sales will fall 4.6 percent this year, down from a previous forecast of a 2.9 percent drop. It expects the median price of a home to fall 1.3 percent this year, which would be the first annual price decline on record.