Sales of previously owned US homes hit a seven-month low in June as demand for condominiums fell and contract cancellations surged, dampening hopes the distressed housing market was starting to improve. The National Association of Realtors said on Wednesday sales fell 0.8 percent last month from May to an annual rate of 4.77 million units, the lowest since November, and declining for a third straight month.
Economists had expected sales to rise to a 4.90 million-unit pace. The drop in sales was surprising given that pending home sales contracts rebounded in May, and it eroded optimism over the sector that had been lifted by a report on Tuesday showing a jump in home construction to a six-month high in June.
Cancellation of contracts was the chief driver behind the drop in June sales, the Realtors said, but it could not give a specific reason. However, the group noted the sluggish economy, especially the weak labour market and tight lending conditions.
"Buyers and sellers are increasingly running up against conservative appraisals, which often cause deals to fall through or be delayed," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina.
The sales drop could add to concerns about the economy's ability to swiftly rebound this quarter after stumbling badly in the first half of the year.
Continued weakness in the housing market, still struggling with an over-supply of for-sale and foreclosed properties, is helping to constrain growth.
Government data next week is expected to confirm the economy lost further ground in the second quarter after a pedestrian 1.9 percent annual growth pace in the January-March period.
Cancelled contracts rose to a 16 percent rate from 4 percent in May. This was the highest since the Realtors group started tracking cancellations last year and was well above the usual rate of 9 percent to 10 percent.
The decline in sales last month was concentrated in condominiums, with single-family home sales flat. Single-family homes account for a large portion of the home resale market.
Data on mortgage applications offered little hope that sales would rise much in the months ahead. Demand for home purchase loans dipped last week, the Mortgage Bankers Association said in a separate report, but low mortgage rates boosted applications for refinancing.
Some economists attributed the rise to a shift in the mix of sales away from condominiums and purchases by first-time home buyers, adding that higher pricing could encourage more home building in the months ahead.
Home prices rose in the Northeast and West regions, which are typically expensive markets. June's sales pace pushed the supply of existing homes on the market 9.5 months' worth, the highest since November, from 9.1 months' worth in May. A supply of between six and seven months is generally considered ideal.
Foreclosures and short sales, which typically occur below market value, made up 30 percent of transactions last month, slipping from 31 percent the prior month. All-cash purchases accounted for 29 percent of transactions in June.