Sales of previously owned homes fell to the lowest level in almost four years and declining prices hurt consumer confidence this month, indicating the U.S. economy is struggling to pick up following a first-quarter slowdown.
Existing home sales slid 8.4 percent in March after rising 3.7 percent the previous month, the National Association of Realtors said today in Washington. A separate private report showed home-price declines in 20 major cities accelerated in February.
The Conference Board’s consumer confidence index fell to 104, from 108.2.
Slowing housing and deteriorating confidence pose a risk that the economy, which is projected to have grown last quarter at the weakest pace in more than a year, won’t accelerate in coming months. The dollar dropped and benchmark Treasury yields reached their lowest level this month.
“The housing downturn is now weighing increasingly heavily on the U.S. economy,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. It’s “starting to have an impact on consumers’ psyche and also their spending.
The second quarter is going to be no better than the first.”
Purchases of existing homes dropped last month to an annual rate of 6.12 million, from 6.68 million in February, the biggest decline since January 1989, said David Lereah, chief economist at the National Association of Realtors. Sales fell 11.3 percent compared with a year earlier.
Federal Reserve policy makers including Chairman Ben S. Bernanke have repeatedly said this year that housing presents a risk to their outlook for “moderate” growth. Still, officials reiterated at last month’s meeting that inflation was their bigger concern and said higher interest rates may still be needed. The Fed next meets May 9.
Resales were forecast to drop 4.3 percent last month to a 6.40 million annual rate, from February’s originally reported 6.69 million, according to the median estimate in a Bloomberg News survey of 66 economists.
The decline in sales, while partly weather-related, may renew concern that the housing recession will linger. Subprime mortgage defaults are rising, and owners’ reluctance to reduce prices may keep more unsold properties on the market.
“The negative impact of subprime is considerable,” Lereah said at a briefing. “We expect sales to be sluggish in the second quarter.” Consumer confidence declined to the lowest level in eight months in April, undercut by concerns about rising gasoline prices and the wave of mortgage defaults. The New York-based Conference Board’s index dropped below last year’s average of 105.9.
This year’s 23 percent increase in gasoline prices is taking a bite out of Americans’ wallets, and the lingering housing slump threatens to erode their wealth. Fed policy makers are counting on an expanding job market to keep consumers spending.
“High gasoline prices are starting to weigh on consumer sentiment,” said Russell Price, senior financial economist at H&R Block Financial Advisors in Detroit. “The added burden is bound to wear on spending habits if gas prices remain elevated through the summer.” The supply of homes for sale decreased to 3.745 million last month. At the current sales rate, that represents a 7.3 months’ supply, the highest since October. The median price of an existing home fell 0.3 percent last month from a year ago to $217,000.
