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Real Estate Troubles Build

Nicholas Yulico

Existing-home sales fell a steeper-than-expected 4.1% in July as the inventory of houses on the market hit a record high, signaling further trouble for homebuilders trying to sell new homes.

The National Association of Realtors said Wednesday that total existing home sales came in at a seasonally adjusted annual rate of 6.33 million for July, the lowest sales in two years. The number was below the downwardly revised pace of 6.6 million in June, and 11.2% below the 7.13 million mark in July 2005.

Economists surveyed by Reuters expected an annual sales rate of 6.55 million homes for July.

The national median existing-home price for all housing types was $230,000 in July, up 0.9% from a year earlier. The median is a typical market price where half of the homes sold for more and half sold for less

The inventory of homes for sale spiked to a whopping 3.86 million units, which represents a 7.3-month supply at the current sales pace.

"Inventories were up almost 40% higher from year-ago levels, and this is an environment of slowing sales," says Phillip Neuhart, an economic analyst with Wachovia.

Wachovia predicts a 20% decline in sales through the end of 2007 as compared to the end of 2005.

"There's no reason we can't go back to the pre-boom levels (of 2003)," when annual sales totaled less than 6 million, Neuhart says.

From June to July, sales declined across the country. Sales fell 6.4% in the West, 5.9% in the Midwest, 5.4% in the Northeast and 1.2% in the South.

The sales numbers are a lagging indicator of the housing market since the data is based on home closings, which trail contracts by about two months.

Still, the high inventory of homes for sale spells trouble for homebuilders, who continue to report declining orders. On Tuesday, Toll Brothers(TOL Quote) provided optimistic order projections for next year, which assumes that trends will eventually improve.

Builder stocks were lower Wednesday, with Centex(CTX Quote) dropping 3.1%, Toll falling 2.9% and Lennar (LEN Quote) shedding 2.4%.

KB Home(KBH Quote) was down more than 5% after The Wall Street Journal reported that the company is looking into its stock option grants to CEO Bruce Karatz.