Prices for US homes suffer record drop

Prices of US existing homes suffered a record drop in August and the rate of sales tumbled, offering little sign of improvement in the source of the financial crisis in the US.

The pace of existing home sales decreased 2.2 per cent to an annual pace of 4.91 million units while the median national home price declined a record 9.5 per cent to $203,100, the National Association of Realtors said.

In what would normally be a potentially bright spot, the overstock of homes for sale shrank. However, the trade group said as many as two in five home sales were by borrowers who have seen their property lose value or are facing foreclosure.

"The NAR estimates that 35 to 40 per cent of all sales are of distressed property, so underlying private activity is weaker than the headlines (imply) and there is little sign of imminent improvement," Ian Shepherdson, chief US economist at High Frequency Economics.

Economists polled by Reuters were expecting home resales to fall to a 4.93 million-unit pace from the five million unit rate initially reported for July, which was revised to a 5.02 million unit pace.

The inventory of existing homes for sale fell seven per cent to 4.26 million from the record-high overstock reported in July.

The data came as US Federal Reserve chairman Ben Bernanke delivered a second day of testimony before Congress aimed at persuading skeptical lawmakers of the need for the government's $700 billion rescue plan for troubled financial markets.

The political wrangling over the financial-sector bailout overshadowed the day's offering of economic data.

Stocks were higher but vulnerable to uncertainties over the fate of the banking sector. US government bonds, which generally benefit from signs of economic weakness, were higher on the day.

Applications for US home mortgages retreated to sluggish levels last week as rising interest rates spoiled a spurt in loan refinancing, according to data published from an industry group.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity dropped 10.6 per cent to 591.4 in the week ended September 19.

The MBA's seasonally adjusted index of refinancing applications declined 11.2 per cent to 2,043.4 last week as the average 30-year mortgage rate surged 0.26 percentage point to 6.06 per cent, the MBA said.