This week, the National Association of Realtors reported that sales of existing homes in the United States increased almost three percent in February. It was the first increase since last July.
A home for sale in Denver A home for sale in Denver, Colorado But fueling that increase was a drop in prices. The S&P/Case-Shiller index of twenty major markets showed that home prices fell almost two and a half percent in January. Prices were down almost eleven percent from a year before.
And still another report this week showed that sales of new single-family houses fell in February. Sales were down almost two percent from January, to a thirteen-year low. The Commerce Department estimated there was a ten-month supply of newly built houses waiting to be sold.
Experts say prices in many markets will have to fall further before more people are willing or able to buy.
Prices went up and up in recent years, before the housing bubble burst. Many buyers now struggling to make payments took out loans that were too big. They thought prices would keep rising and they could sell their home for a nice profit.
Rising values meant that people could also take out home equity loans and lines of credit. They used their home as a cash machine by borrowing against its value.
Now, as those values fall, some people owe more than their home is worth. Many buyers, often with risky credit histories, took out adjustable-rate mortgages, which started out low but later reset to higher rates.
About two percent of all home loans are in foreclosure. Of course, that means ninety-eight percent of homes are not being reclaimed by lenders. Still, this is the highest rate since the Mortgage Bankers Association began keeping records in 1979.
The weak housing market is largely responsible for an economic crisis that is leading to new government steps in the financial system.
Last week, the Federal Reserve pushed through a deal for J.P. Morgan Chase to buy Bear Stearns for two dollars a share. Bear, the nation's fifth-largest investment bank, was near collapse after big losses on its mortgage-backed securities. To help make the deal, the Fed agreed to take responsibility for up to thirty billion dollars in those securities.
But J.P. Morgan faced a rebellion by Bear shareholders, so this week it increased its offer to ten dollars a share. It also agreed to take responsibility for one billion dollars of Bear's hard-to-sell securities.
And that's the VOA Special English Economics Report, written by Mario Ritter. I'm Steve Ember.
