By Bob Willis May 24 (Bloomberg) — A larger-than-projected increase in April sales of previously owned homes was accompanied by an even bigger jump in inventories, raising the risk U.S. property values will backslide. Purchases climbed 7.6 percent to a 5.77 million annual rate as buyers rushed to qualify for an expiring government tax credit, the National Association of Realtors said today in Washington. The number of homes on the market surged by the most in a decade, while median prices showed the biggest gain in four years. Increasing supply, combined with mounting foreclosures and the probability that sales will retrench once a federal credit expires in June, may bring an end to the improvement in home values. Lower mortgage rates brought on by concern the European debt crisis will slow global growth may limit the damage. “It will take some time before we are back to more healthy levels for the housing market,” said Harm Bandholz , chief U.S. economist at UniCredit Group in New York, who projected sales would rise to a 5.7 million rate. “We see a very gradual recovery from very depressed levels. The low rates help to support affordability,” he said, and “inventory in general will continue to add downside pressure to prices.” Stocks fluctuated between gains and losses as Apple Inc. led a rally in technology shares, offsetting concern that Europe’s debt crisis has further to run. The Standard & Poor’s 500 Index was unchanged at 1,087.69 at 12:35 p.m. in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 3.20 percent from 3.24 percent late in the day on May 21, The yield reached 3.10 percent that day, the lowest level in a year. Exceeds Forecast Existing home sales were forecast to rise to a 5.62 million rate, according to the median estimate of 71 economists in a Bloomberg News survey. Projections ranged from 5.4 million to 5.85 million. The agents’ group revised the March figures up to 5.36 million from an initially reported 5.35 million. Purchases of existing homes climbed 26 percent compared with a year earlier prior to adjusting for seasonal patterns. The median price increased 4 percent from a year ago, the biggest gain since May 2006, to $173,100. The pace of home sales last month reached the highest level since November, the month the federal incentive was first due to expire. Home sales may hold up through next month as buyers who close on a deal by June 30 are still eligible for the administration’s credit worth up to $8,000. The deadline for signing contracts was the end of April, and transactions must be completed by June 30. Sales of existing houses are tabulated at contract closings, meaning the tax credit can still influence demand through June. Mortgage Rates Rates for 30-year fixed mortgage loans fell to 4.84 percent in the week ended April 20, a five-month low, according to figures from Freddie Mac. Falling home-loan rates may help prevent the housing market from slipping after the expiration of the federal homebuyer tax credit. “The housing market is moving in the right direct, but it’s going to be bumpy, especially as it’s being weaned off federal stimulus,” said Ryan Sweet , a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. The number of previously owned homes on the market climbed to 4.04 million, the highest level since July, today’s report showed. At the current sales pace, it would take 8.4 months to sell those houses compared with 8.1 months at the end of the prior month. Not ‘Healthy’ The surge in inventory was larger than normal for this time of year and is not a “healthy” development, the NAR’s chief economist Lawrence Yun said in a press conference. The group cannot pinpoint what is driving the gain, he said. It’s either a release of pent-up supply, which implies there is also pent-up demand, or it may be investors dumping properties on the market, which will hurt resale prices, Yun said. The so-called shadow inventory of homes taken over by banks or in the process of foreclosure may total as many as 800,000, while as many as 2 million additional dwellings are 90 days or more delinquent and headed for foreclosure, Yun said in an interview. The increase in supply means there will be no “meaningful” increase in home values this year or possibly next, Yun said. Homebuilders continue to struggle. Pulte Group Inc ., the largest U.S. homebuilder by revenue, said the number of houses it sold in the first quarter fell even after it combined operations with rival Centex Corp. “The U.S. housing industry is finding, and may have already found, a bottom, but that’s different from saying that a recovery is at hand,” Richard J. Dugas , the company’s chairman and chief executive officer, said on a conference call with analysts on May 5. “Even a modest uptick in employment could have a significant impact on demand, assuming it drives greater confidence.” To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net .
