Existing home sales fall, median price down 15%

Supervision, not control, will be used to guide banks: Fed

(NEW YORK) Sales of US previously owned homes unexpectedly fell in January as plunging prices no longer attracted buyers ahead of the Obama administration's stimulus plans.

Purchases fell 5.3 per cent to an annual rate of 4.49 million, the fewest since 1997, from 4.74 million in December, the National Association of Realtors said yesterday in Washington. The median price dropped 15 per cent from a year ago, and distressed properties accounted for 45 per cent of all sales.

Americans may have been waiting for details of President Barack Obama's plans aimed at stemming foreclosures and declining home vales that are at the core of the economic slump, the group said.

The housing slump is likely to deepen as concern that record foreclosures will bring prices down even more and a lack of credit keep prospective buyers at bay.

Banks have been tightening the availability of credit after suffering massive losses from sub-prime mortgages which triggered the present global economic crisis.

Federal Reserve chairman Ben Bernanke in his testimony before the House Financial Services Committee in Washington yesterday said the government would use supervision instead of shareholder control to guide major banks, and warned against dismantling their franchises.

The remarks eased concern Treasury Secretary Timothy Geithner's financial plan would push aside private shareholders, and spurred the biggest gain in financial shares in a month.

Mr Geithner on Feb 10 provided just an outline of the Obama administration's plans for buttressing the financial industry. The lack of details led some investors to speculate on their own that a recapitalisation of banks would involve substantial government control. The Fed chairman assured markets that 'the nation's banking regulators were not proposing nationalising banks.'

Repeating testimony presented to the Senate Banking Committee on Tuesday, Mr Bernanke's remarks countered a growing drumbeat among some economists and lawmakers in favour of government takeovers of major financial firms to cleanse them of distressed assets and ensure they keep lending.

Establishing ownership control poses legal issues and could undermine banks' value with private investors, Mr Bernanke warned.

Mr Bernanke added that 'the best sign of success' will be when the 'government can start taking its capital out or the banks can start replacing the public capital with private-sector capital.' - Bloomberg

Source: Business Times, 26 Feb 2009