Recovery hindered by recession debris

WASHINGTON • Nationwide home sales may have finally hit bottom, new data show, but a host of thorny problems are hindering recovery.

Sales of previously occupied homes rose by 2.4 percent from April to May - the third monthly increase this year - but the results missed analysts' expectations.

Home sellers are still competing against a growing number of bargain-priced foreclosures, buyers are paying higher mortgage rates and new rules for property appraisers are delaying or scuttling many deals.

"We have just been flooded with e-mails, telephone calls on the appraisal problems," said Lawrence Yun, the National Association of Realtors' chief economist.

The real estate agents' group said Tuesday that home sales rose to a seasonally adjusted annual pace of 4.77 million, up from a downwardly revised rate of 4.66 million in April.

About one in three homes sold last month was a foreclosure or distressed sale, dragging down the median price to $173,000 - 16.8 percent below a year ago.

The size of the price drop, however, reflects a crush of first-time buyers and investors snapping up bargain-priced homes. A government home price index also released Tuesday showed home prices were flat between March and April. That index, however, only measures the values of homes with government-backed loans, so it underestimates the weakness at the top end of the market and doesn't include many foreclosures.

The bursting of the housing bubble helped push the U.S. economy into the worst financial crisis in seven decades. Now the economy is hobbling the recovery of the real estate market. Corporate layoffs are forcing more cash-strapped homeowners to miss their monthly mortgage payments. Unemployment, at 9.4 percent, isn't expected to peak until mid-2010 and foreclosures should crest about six months after.

"We're in the bottom of the seventh-inning" of the housing crisis, said Mark Zandi, chief economist at Moody's Economy.com.

But there's still a risk the housing bust could go into extra innings.

Interest rates, for example, have climbed back from their all-time lows this spring. The average rate on a 30-year, fixed-rate mortgage was 5.38 percent last week, according to Freddie Mac.