Rising Rates Slowed Existing-Home Sales in May

Sales of existing homes fell 1.2 percent in May as higher interest rates slowed buying activity, the National Association of Realtors said Tuesday.

Sales fell to a seasonally adjusted annualized rate of 6.67 million units in May from a downwardly revised level of 6.75 million in April. The rate in May was 6.6 percent below the pace of 7.14 million units a year earlier, but slightly higher than analysts had expected.

David A. Lereah, the association's chief economist, said the data were consistent with his forecast of a soft landing for the housing market.

"Over all, I think this is a pretty good report," he said. "It demonstrates that the housing sector is slowing, but it's slowing in a manageable way."

But the data also showed a buildup of inventories of unsold homes. A record 3.6 million homes were for sale at the end of May, representing a 6.5-month supply, compared with 6.1 months at the end of April and the largest monthly supply since May 1997, the trade group said.

In some overheated local markets, like Southern Florida, the supply of unsold homes has reached more than 10 months' worth, putting them on the cusp of price reductions, Mr. Lereah said.

Any downward adjustment in prices would probably last only a few months, he said, because of demand from home shoppers who have been waiting for opportunities to buy at more affordable prices.

"There's pent-up demand out there in these local markets where prices will soften because those local economies are very healthy," Mr. Lereah said. "There's job creation, and there's also good migration of households into those areas."

Nationally, home prices still increased in May, both compared with April and a year earlier. The national median existing home price for all housing types was $230,000 in May, up 6 percent from $217,000 in May 2005 and up 3.6 percent from the April median of $222,000.

Mr. Lereah said sales dropped more sharply in some markets, including Florida, Virginia, California and the District of Columbia. States where sales increased included Texas, North Carolina, Georgia and Utah. In the Northeast, the Realtors said existing home sales fell 4.2 percent, compared with April, and in the Midwest they fell 3.8 percent, while edging up 0.7 percent in the West and 0.4 percent in the South.

The national average mortgage rate for conventional 30-year fixed-rate loans was 6.6 percent in May, up from 6.51 percent in April and 5.72 percent in May 2005.