Low Mortgage Rates Not Enough to Prop Up Housing Market

Sales of previously owned homes fell 2.2% in May from April, a decline that took many analysts by surprise and signaled just how fragile the housing market remains.

The May closings were 19.2% above the same month last year, but the figures are still unsettling. Economists figured they would be higher, considering they included effects of the home buyers' tax credit. To get the credit, buyers had to sign sales contracts by April 30 and must close the deals by June 30.

The closings, rather than signed contracts, are counted as sales. The tax-credit effect will continue into June, said National Association of Realtors chief economist Lawrence Yun in a statement releasing the May figures.

But, he added, about 180,000 who signed contracts by the April 30 deadline might have trouble meeting the June 30 closing date because of mortgage lending delays, especially for short sales, as well as interruption of the National Flood Insurance Program. The program is in limbo, stuck in pending Congressional legislation, since the most recent extension of the program ran out May 31.

"Sales and related local economic activity would have been higher without delays in the closing process or flood insurance issues," Yun said.

The Senate is considering legislation extending the deadline for closings to Sept. 30 from June 30.

Low Mortgage Rates Don't Make Up For High Unemployment

Another reason for the less-than-expected closings is continued high unemployment, which is also keeping savings rates as well as mortgage rates down. Although the economy added 431,000 jobs in May, almost all of them were temporary Census jobs.

"We just don't have a lot of buyers willing or able to step up to the plate. That will likely remain the case unless and until we get some momentum in the job market," Weiss Research analyst Mike Larson told Dow Jones Newswires.