WASHINGTON—Sales of previously owned U.S. homes rose in May and the glut of homes for sale shrank, but prices were off sharply from a year ago, suggesting the housing sector remains a big weight on the economy.
Home sales, reported by a real estate trade group on Thursday, were slightly higher than economists had expected but they cautioned that it was far from a definitive sign that the downtrodden housing sector had turned a corner.
Separate reports showed the U.S. economy grew slightly faster than initially thought in the first quarter, growing at a modest 1 percent, while the job market remained sluggish last week.
The slew of data had little impact on financial markets. U.S. stocks plunged on worries about heavy losses in the banking sector and a jump in the price of oil after the president of OPEC said prices could rise as high as $170 a barrel in coming months.
The National Association of Realtors said existing-home sales rose 2 percent last month to a 4.99 million-unit annual rate, pushing the inventory of unsold homes down by 1.4 percent to 4.49 million, or a 10.8 months' supply at the May sales pace.
"One month does not create a trend. This is just one bump in a long-term downturn in the residential market," said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.
The housing market has been shaken for months by a credit crunch and a wave of failing home loans that have spooked lenders and prospective buyers.
The Realtors group said the median national home price declined 6.3 percent from a year ago to $208,600, a level that apparently pulled some buyers into the market.
"Sales appear to be forming a bottom," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. "However, the year-on-year price declines continue, and this loss of net wealth is going to weigh on consumers' balance sheets long after the tax rebate checks are spent."
As part of an effort to spur the economy, the government is sending out about $110 billion to U.S. consumers, but many economists worry spending will falter once the payments subside.
The chief executive of Lennar Corp, the second largest U.S. home builder, on Thursday, said he expects the housing market to deteriorate further in 2008. CEO Stuart Miller repeated calls for the federal government to help stabilize the industry as Lennar reported a bigger-than-expected quarterly loss and a steep decline in new orders.
Consumers
Upward revisions to consumer spending and exports led the government to revise up its measure of first-quarter economic growth.
The Commerce Department said U.S. gross domestic product, which measures total output of goods and services within U.S. borders, grew at a 1 percent annual pace in the first three months of 2008, a touch stronger than the 0.9 percent growth it had estimated last month.
GDP growth was initially reported in April at an anemic 0.6 percent, fueling concerns the economy might be slipping into recession.
Consumer spending, which accounts for more than two-thirds of national economic activity, rose at a 1.1 percent rate in the quarter, slightly ahead of the previous 1 percent estimate. Despite that upward revision, it was the smallest gain in consumer spending since the second quarter of 2001, during the last recession.
The U.S. Federal Reserve's policy-setting committee, at the end of its two-day meeting on Wednesday, pointed to stronger consumer spending as a sign that the economy was hanging on despite the housing sector slump and subsequent credit contraction. The central bank left interest rates unchanged on Wednesday and signaled that it may soon be ready to raise borrowing costs if inflation keeps building.
The Commerce Department said consumer prices rose at a 3.6 percent rate in the first quarter, up 0.1 percentage point from its preliminary estimate. Excluding food and energy, the price index was up 2.3 percent.
Jobless Claims Stay High
Separately, the Labor Department reported the number of workers filing new claims for jobless benefits was unchanged last week, although a separate gauge that irons out volatility rose to the highest level since 2005.
"Layoffs are rising as companies begin to realize that the credit-driven go-go days are over and aren't coming back," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
In addition, the number of people still claiming benefits after drawing an initial week of aid rose 82,000 to 3.14 million in the week ended June 14, the most recent week for which data is available.
It was the highest reading for so-called continued claims since February 2004 and the ninth straight week above 3 million, a sign the weak economy was making it harder for U.S. workers to find jobs.
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