U.S. home sales rise, manufacturing activity mends

Obama praises Bernanke
Play Video
By Lucia Mutikani
WASHINGTON (Reuters) - Sales of previously owned U.S. homes rose for a second straight month in May but were weaker than expected, adding to growing fears of an anemic economic recovery from a deep recession.
The chief economist of the National Association of Realtors, which released the data on Tuesday, said sales in some areas appeared to be slowing and warned of the danger of a "delayed" housing market recovery.
The Realtors' group said sales climbed 2.4 percent last month to an annual rate of 4.77 million units. While that pace was below market forecasts it was the second straight month sales had risen, for the first back-to-back gain since September 2005.
Despite signs the market is stabilizing, the NAR said the median national home price fell 16.8 percent in May from a year earlier, the third-largest drop on record.
A separate government report on Tuesday showed home prices fell 6.8 percent year-on-year in April after dropping 7.3 percent the previous month.
The blue chip Dow Jones industrial average ended down 16.10 points at 8,322.91 .DJI amid disappointment with the data, which fed the view the economy's recovery from its longest recession since the Great Depression would be tepid.
Yet another postponement by Boeing Co (BA.N) of the inaugural flight of its long-delayed 787 Dreamliner also weighed on stocks. U.S. government bond prices rallied on the data and as market participants adjusted positions ahead of the Federal Reserve's interest rate verdict on Wednesday.
The Fed -- the U.S. central bank -- is expected to hold its target for federal funds in the zero to 0.25 percent range reached in December, but it is expected to dampen market expectations for interest rate hikes this year.
"The housing number suggests that things are bottoming, but that's a far cry from improving. The markets are focused on how fast the recovery is going to be, and I think it won't be as fast as people are thinking," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.
DISTRESSED SALES MODERATE
The Realtors report showed sales remained down 3.6 percent compared to May last year. Distressed sales made up 33 percent of the sales in May, but this compared to the 45 to 50 percent seen in the past few months.
Other housing data have also suggested the three-year housing slump was nearing a bottom but a surge in mortgage rates and persistently high unemployment threaten this budding optimism.
"There is a danger that the recent surge in mortgage rates will snuff out a recovery before it even begins," said Paul Dales, an economist at Capital Economics in Toronto.
Collapsing home values and tighter access to credit are forcing U.S. households to become more frugal, a trend that could make the widely anticipated economic recovery in the second half of 2009 feeble and lacking on the jobs front.
A monthly survey of manufacturers from the Federal Reserve Bank of Richmond showed factory activity in the U.S. mid-Atlantic states quickened in June compared with May. However, manufacturers' outlook for the next six months softened, signaling conditions remain fragile. Continued...
Source: Reuters