Housing Lifts Recovery Hopes

By JAMES R. HAGERTY and NICK TIMIRAOS Sales of existing homes in July jumped at the fastest rate in 10 years, sending stock prices up around the globe on hopes that the U.S. housing market -- a driver of the world's largest economy -- is stabilizing after years of decline. Sales of single-family homes increased 7.2% in July from a month earlier to a seasonally adjusted annual rate of 5.24 million units, the National Association of Realtors said Friday. Related Economists React: 'A Long Way to Go' Housing: A 'Wave' of Foreclosure Listings? Souring Loans Compound Mortgage Woes The monthly increase was the largest since 1999, when the NAR began collecting data for all types of homes -- its measure includes condominiums and cooperative apartments. It marked the fourth monthly rise in a row. Sales also were up 5% from July 2008, showing the first gain from the year-earlier level since November 2005. The good news on housing came as Federal Reserve Chairman Ben Bernanke issued a mostly optimistic report Friday on the state of the U.S. economy. "Fears of financial collapse have receded substantially," Mr. Bernanke said at the Federal Reserve's annual retreat at Jackson Hole, Wyo. "After contracting sharply over the past year, economic activity appears to be leveling out, both in the U.S. and abroad, and the prospects for a return to growth in the next year appear good." The housing report pushed the Dow Jones Industrial Average up 155.91 points, or 1.7%, to close at 9505.96. The Dow has risen five of the past six weeks. The increase in home sales came as buyers rushed to lock in bargains on foreclosed homes and tap a federal tax credit for first-time buyers that is set to expire in a few months. Yet home sales remain nearly 20% below the pace of 2006, when the housing boom was peaking. Housing economists and even some real-estate agents caution that the recovery is fragile. Housing Markets Finally Out of a Tailspin? 3:25 There are increasing signs that housing markets are coming out of their tailspin, as sales of previously owned homes rose in July. WSJ's Nick Timiraos discusses housing markets with CEO of Century 21 Tom Kunz. For now, low prices and attractive financing are enticing buyers. Jodi Janiga, 32 years old, is using a loan insured by the Federal Housing Administration to buy a two-bedroom townhouse in Green Valley, a Las Vegas planned neighborhood with golf courses and sidewalk statues. That required her to put about $4,200 down on the $119,000 property. Three years ago, similar townhomes in the area sold for $280,000. "It was a smoking deal," said Ms. Janiga, a schoolteacher who says she bid on nearly 15 homes. "The buyers are back, and they're buying," but mainly the lowest-priced homes, said Teresa Boardman, a real-estate broker in St. Paul, Minn. Many potential sellers of higher-quality homes are waiting to put them on the market if prices start to rebound, she said. The economic outlook is crucial for housing demand, as many potential buyers will hold off as long as they fear job losses. July Home Sales Reach Two Year High 1:44 In a boost for the economy, sales of homes in July reached levels not seen since 2007. Dow Jones Newswires' Meena Thiruvengadam reports that trend should continue, thanks to falling prices and ongoing sales of foreclosed properties. Most economists say the U.S. economy, which began contracting in December 2007 in what is the deepest and longest recession since World War II, has started growing again. The Fed said manufacturing output rose 1% in July, the strongest increase since December 2006. U.S. exports rose in May and June. Consumers are still dragging on the economy, though, as a high jobless rate, stagnant wages, tight credit and a renewed eagerness to save have restrained spending. The Realtors said a survey of agents showed that foreclosure-related sales accounted for 31% of July transactions. But foreclosures are a much bigger factor in some markets, particularly in parts of Florida, Nevada, Arizona and California. In the Las Vegas area in July, bank-owned properties accounted for 73% of all sales, according to the Greater Las Vegas Association of Realtors. Distressed sales continue to push down prices. The median U.S. price in July was $178,400, down 15% from a year earlier. Sales were also strong in some metro areas that haven't been hit hard by foreclosures, said Tom Lawler, a housing economist in Leesburg, Va. These include Des Moines, Iowa; San Antonio and Roanoke, Va. "I think people who decided to check into the [home-shopping] process were pleasantly surprised by prices and mortgage-credit availability," Mr. Lawler said. The FHA is insuring mortgages for people with down payments of as low as 3.5%. Housing also has grown more affordable. On average, a U.S. household with a median income in the second quarter of this year could afford a home costing 71% more than the median price, according to Moody's Economy.com. Three years ago, such a household could have afforded a home only 5% over the median. Compared with a year earlier, unit sales in July were up 3.3% in the Northeast, 8% in the Midwest, 5.4% in the South and 1.8% in the West, the NAR said. Sales have been aided by a federal tax credit of as much as $8,000 for first-time home buyers. That stimulus will end Nov. 30 unless Congress extends it. Sens. Christopher Dodd, a Connecticut Democrat, and Johnny Isakson, a Republican from Georgia, have introduced legislation to extend the credit, increase it to as much as $15,000 and make it available to all home buyers, not just first-timers. Senate Majority Leader Harry Reid backs an extension of the credit. "Congress is not going to endanger the fragile beginnings of a housing recovery by letting the credit lapse," said Howard Glaser, a mortgage-industry consultant in Washington. Inventories of unsold homes are falling but remain high. And many potential sellers are staying out of the market, waiting for signs of rising prices before trying to sell. That could lead to a bulge in inventory later. Some 1.8 million homeowners are currently in foreclosure, and the number of future foreclosures could top one million, says Torsten Slok, senior economist at Deutsche Bank. "It's safe to say that we still have a significant amount of foreclosures ahead of us," he said, adding: "It's still not a healthy housing market when you have one third of sales coming from foreclosure sales." —Sara Murray and Corey Boles contributed to this article. Write to James R. Hagerty at bob.hagerty@wsj.com and Nick Timiraos at nick.timiraos@wsj.com