Just when it seems the U.S. housing market cant get any worse it does just that.
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The National Association of Realtors reported Wednesday that sales of existing homes fell to a seven month low as an increasing number of potential buyers backed out of contracts.
Total existing home sales dropped 0.8% to a seasonally adjusted 4.77 million in June, down from 4.81 million in May, according to the NAR data. Economists polled by Reuters had expected sales to rise to a 4.90 million-unit pace.
The current numbers are down 8.8% from a year ago, when many homes purchased under the federal governments home buyer tax credit were scheduled to close.
Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month, NARs chief economist Lawrence Yun said in a statement.
Stubbornly high unemployment in the U.S., among other economic factors, was cited for the contract cancellations. If people are either actually losing their job or merely afraid of losing their job, they arent likely to move ahead with the biggest investment of their lives.
Unemployment jumped to 9.2% in June as the U.S. added a disturbingly low 18,000 jobs during the month.
Another reason cited for the downturn was the glut of foreclosed home on the market. With a glut of inventory, home prices continue to fall and potential buyers are willing to sit on the sidelines a bit longer to see how low prices will go.
In addition, many housing experts say lending standards may have gone too far in the opposite direction from where they stood during the housing boom earlier last decade. Back then it seemed anyone could get a mortgage and the lax standards contributed to the financial crisis that rippled through the global economy.
But now there is growing concern that lending standards may be too stringent, especially if the U.S. hopes to energize its housing market.
With record high housing affordability conditions thus far in 2011, wed normally expect to see stronger home sales. Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals, said NAR President Ron Phipps in a statement.
He may have a point. Mortgage rates are at historically low levels, hovering around 4.5% for a 30-year fixed rate loan, according to Freddie Mac, and home values are at their lowest point in decades. Yet the market remains stagnant.