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Thursday, August 26, 2010

Housing slump clouds US recovery prospects

WASHINGTON: US home sales are plunging despite rock-bottom mortgage rates as high unemployment prevents people from buying houses and threatens to curtail economy recovery.

Existing-home sales plunged for the third straight month by a whopping 27.2 per cent in July to levels unseen in more than a decade, an industry group said on Tuesday.

Sales of single-family homes, townhomes and condominiums dropped to 3.83 million units from 5.26 million units in June, said the National Association of Realtors.

The slide was more than double the 12.1 per cent expected by most economists, with sales at the lowest level since 1999.

"The disappointing US home sales data has investors worried that the global recovery is unraveling," said Chris Lafakis, an economist at Moody's

Single-family home sales - accounting for the bulk of transactions - were at the lowest in 15 years, the association said, providing the latest statistics on the housing sector, which was at the epicentre of the financial crisis that plunged the nation into recession in December 2007.

If sales do not improve, rising inventories - there are nearly four million unsold previously owned homes in the market - could eat further into prices.

"The first worry is that we are not seeing much response in demand to the historic drop in mortgage rates," said Societe Generale analyst Aneta Markowska.

Thirty-year mortgage rates have fallen to a record low 4.42 per cent but mortgage applications for new purchases as of early August were sitting very close to cyclical lows.

"Housing and employment continue to be major problems for the US recovery," said analyst Andrew Busch of BMO Capital Markets.


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