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Existing home sales, prices rise in July
Updated 8/23/2012 12:56 PM ET
Home sales kept up their recovery in July, but the market's slow progress makes some economists question why record-low mortgage rates aren't having a bigger impact.

The National Association of Realtors said sales of previously occupied homes rose 2.3% from June, to a seasonally adjusted annual rate of 4.47 million. That was still the second-worst pace of the year and followed a decline in June. A 5.5 million rate is considered healthy.

The median price of homes sold rose 9.4% from a year ago — the sharpest increase since January 2006 — but the gain may be deceptively large. The Realtors association says that higher median prices are due to fewer sales of small, less-expensive homes.

The price gains also reflect a smaller percentage of foreclosure-related distress sales, Moody's Analytics economist Mike Zoller said.

Distressed homes — including foreclosures and other properties sold at steep discounts from market value — accounted for 24% of July sales compared with 29% a year ago.

Another reason lower-priced homes are in short supply is many owners are still in financial distress five years into the housing bust, said Stan Humphries, chief economist of real estate website Zillow.

Almost half of homeowners younger than 40 owe more on their homes than they are worth, keeping cheaper homes off the market.

Home sales

That skews statistics by making the Realtors' median sales price, which reached $187,300 last month, reflect a different mix of homes than it once did.

"Appreciation will go flat once people are out of having negative equity and put their homes on the market," Humphries said. "As people sense a recovery is afoot, they may price their homes higher and be disappointed."

July's sales pace missed economists' expectations for an annual rate of about 4.52 million home sales, says UBS economist Drew Matus. One reason is that credit continues to be relatively tight, as former homeowners who consented to short sales or lost homes to foreclosure are largely unable to get loans for new properties.

Lawrence Yun, the Realtors association's chief economist, said sales could be stronger if not for "unnecessarily tight lending standards and shrinking inventory supplies."

"Mortgage interest rates have been at record lows this year while rents have been rising at faster rates," Yun said. "Combined, these factors are helping to unleash a pent-up demand."

The average 30-year fixed-rate mortgage fell to a record-low 3.55% in July compared with 4.55% in July 2011, according to Freddie Mac.

Worries about jobs also may be keeping some home buyers on the sidelines, after job growth slipped in the second quarter, said Patrick Newport, an economist at IHS Global Insight.

"These are not great numbers," Newport said. "We have record-low mortgage rates. Something is going on."

Economists have predicted the housing market will begin slowly reversing its more than 30% slide in prices since the 2006 peak, though most do not expect substantial price gains until at least 2013 or 2014.

Posted 8/22/2012 10:03 AM ET
Updated 8/23/2012 12:56 PM ET
A home for sale and "under contract" July 6, 2012, in Rockville, Md.
Paul J. Richards, AFP/Getty Images
A home for sale and "under contract" July 6, 2012, in Rockville, Md.