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Sales of previously owned U.S. homes fell to the lowest in almost five years in July, and the glut of unsold properties climbed to the highest in 16 years as turmoil in the mortgage markets rippled through the housing industry.
With no recovery in sight for housing, lower property values and higher mortgage costs threaten to weaken consumer spending, economists said. An index of homebuilder shares fell to a four-year low.
The National Association of Realtors reported Monday that sales of existing homes dipped by 0.2 percent in July, compared to June, to a seasonally adjusted annual rate of 5.75 million units.
The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.
''We are very likely to see home sales continue to drop,'' said Ethan Harris, chief economist at Lehman Brothers Holdings Inc. in New York, who accurately predicted the number. ''There's a big imbalance between supply and demand, with lots of people who want to sell and lots of hesitant buyers.''
The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.
But economists said the report on existing home sales signaled further trouble ahead, given a big jump in the inventory of unsold homes which rose by 5.1 percent to a record level of 4.59 million homes.
Based on the July sales pace, it would take 9.2 months to exhaust the number of single-family homes on the market, the highest level in nearly 16 years, and 11.9 months to exhaust the level of condominiums on the market. The months supply of condos sitting on the market is 45.1 percent higher than a year ago.
The rising glut of unsold homes is putting downward pressure on prices. The median price of an existing home, the point where half of homes sold for more and half for less, has now fallen every month for a year, something that has not occurred before on Realtors' records going back to 1969. Economists said to expect more price declines in coming months.
''We are literally swimming in an ocean of homes for sale,'' said Mike Larson, a real estate analyst with Weiss Research Inc. ''Until we work through this extremely large inventory glut, we're not going to see any momentum in home prices.''
Analysts said the financial market turbulence that has occurred in August will mean further downward pressure on home sales as big investors such as hedge funds grow more leery about purchasing mortgages that have been packaged into securities for fear that the rising number of defaults will mean they won't get repaid.
Even before the latest market turbulence, banks and other lenders were tightening up on their loan standards in response to rising delinquencies, especially on subprime loans extended to borrowers with weak credit histories.
''With fewer buyers qualifying for loans and lots of unsold houses out there, that makes a choice recipe for further sales declines this fall and into the winter,'' said Stuart Hoffman, chief economist at PNC.
Hoffman said there is a growing threat that the severe slump in housing and sagging consumer confidence will weigh on consumer spending in the second half of this year, presenting a significant risk to the overall economy. But he said he believed the country would be able to avoid an outright recession because the Federal Reserve will decide at its next meeting on Sept. 18 to cut the federal funds rate, the key benchmark rate for millions of consumer and business loans.
Hoffman said he expected the September Fed rate cut would be the first of several as the central bank steps up its efforts to combat the current turbulence. The Fed in the past two weeks has supplied the banking system with billions of dollars to encourage banks to keep making loans and on Aug. 17 announced a half-point cut in its discount rate, the interest it charges to make direct loans to banks.
The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.
13,000-home glut for S.L., Utah, Davis counties
In Utah, there is a more than six-month supply of existing homes for sale in Salt Lake, Utah and Davis counties in all price ranges.
The situation is worse for those selling higher-priced homes. In the three-county area, more than 2,600 houses priced at more than $500,000 are listed for sale on the Wasatch Front Regional Multiple Listing Service. That translates into a more than 18-month supply of higher-priced homes and that does not count the number of newly constructed homes or those being sold by owners and not included on the listing.
There are more than 13,000 active listings of properties in the three-county area in all price ranges, not including new homes, according to Salt Lake Board of Realtors. In the past 30 days, about 2,000 properties have sold.