Finance & Business World

Home resales in the U.S. probably advanced for a second month in May as record foreclosures caused prices to drop, economists said before a report today.

Purchases of existing homes rose 3 percent to a 4.82 million annual pace, the highest level since October, from 4.68 million in April, according to the median of 74 forecasts in a Bloomberg News survey. It would mark the first back-to-back increase since 2005.

Tax breaks for first-time buyers in the Obama administration’s stimulus plan, falling property values and lower mortgage rates have helped support the market. At the same time, any recovery is likely to be limited with unemployment rising and borrowing costs shooting back up.

“We’re seeing some early signs of stabilization in home demand but it’s important to emphasize the level of sales remains extraordinarily low,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Housing investment is likely to stop being a drag on growth some time this year but, given the weakness in sales, it’s unlikely to give positive contributions any time soon.”

The National Association of Realtors is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.6 million to 5 million.

May traditionally is one of the top three sales months of the year as the weather turns warmer and families prepare to move before the start of the next school year, according to the NAR. The group adjusts the figures for these seasonal variations in order to facilitate month-to-month comparisons.

Record Foreclosures

Foreclosure filings in the U.S. surpassed 300,000 for a third straight month in May and may reach a record 1.8 million by the first half of the year, RealtyTrac Inc. said June 11.

The median price of an existing home has fallen 26 percent from the peak reached in July 2006 as sales slumped and financial institutions auctioned off foreclosed properties. While the loss has devastated some families, others were able to buy a house for the first time because of the drop in values.

The federal government is trying to stabilize the market by offering lenders incentives to modify the terms of delinquent mortgages and the Federal Reserve has pledged to buy mortgage- backed securities to free up funding for home loans.

The Realtors’ group affordability index was at 174 no fax cash advances.8 in April compared with a record high of 176.9 reached in January. A reading of 100 means a household earning the median income could afford the median-priced home at current mortgage rates.

Tax Credit

In addition, the Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1. About 40 percent of purchases in April were by people buying a home for the first time, the NAR said last month.

Still, soaring unemployment and high levels of debt will put home ownership beyond the reach of would-be buyers even as home prices fall, according to a report yesterday by Harvard University’s Joint Center for Housing Studies.

Mortgage borrowing costs are also starting to climb. The rate on a 30-year fixed loan has averaged 5.42 percent so far this month, up from 4.86 percent in May, according to figures from Freddie Mac. The rate reached 4.78 percent in April, the lowest level since records began in 1972.

The Standard & Poor’s homebuilder supercomposite index has retreated 24 percent since reaching a seven-month high on May 4 as concern mounted that the backup in interest rates will choke off any recovery before it develops.

Construction Steadies

Recent increases in home construction are a sign the market is starting to stabilize, helped by government programs such as the tax credits for first-time homebuyers, Shaun Donovan, secretary of Housing and Urban Development, said June 18.

Housing starts increased 17 percent in May, the Commerce Department said last week.

The Fed is buying as much as $1.75 trillion of housing debt and Treasuries this year in a bid to lower borrowing costs. Total assets on the balance sheet have expanded by $1.18 trillion over the past year to $2 trillion.

The central bank is scheduled to hold its policy meeting today and tomorrow. It has held the benchmark interest rate near zero since December.

Builders are seeing some signs of improvement. While Toll Brothers Inc. and Hovnanian Enterprises Inc. reported second- quarter losses that exceeded analysts’ forecasts, they both noted there were signs of stability in the housing market.

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