Record drop in U.S. prices as sales fall

Bloomberg

Home resales in the U.S. dropped in October and prices fell by the most on record, signaling a deepening housing recession going into 2009.

Purchases of existing homes slid to an annual rate of 4.98 million, lower than forecast, a National Association of Realtors report showed in Washington. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

Monday’s figures indicate a renewed downturn in an industry that showed signs of stabilizing this year, hurt by the credit squeeze and record mortgage foreclosures. That may raise pressure on President-elect Barack Obama to aid homeowners and potential buyers as he assembles a record stimulus package.

"Home sales will continue to fall over the next few months because of tightening credit conditions," said Sal Guatieri, senior economist in Toronto at BMO Capital Markets. "Underlying demand appears very weak" because "many sales are coming from cheap prices on foreclosed properties," he added.

Obama’s priority
At a press briefing in Chicago Monday, Obama said one of his objectives will be "addressing the growing foreclosure crisis," and he called on his economic team to develop a stimulus package of the "size and scope necessary to get the economy back on track." Obama aides and Democratic Senator Charles Schumer have said a stimulus package of as much as $700 billion may be needed to shore up the economy.

Existing home sales were forecast to fall to an annual rate of 5 million, according to the median estimate in a Bloomberg survey. Sales dropped 3.1 percent from the previous month and 1.6 percent from a year earlier. Resales totaled 5.65 million in 2007. The median-sales price declined to $183,300.

Monday’s figures compare with the 4.86 million level reached in June, the lowest in a decade and 33 percent below the record reached in September 2005. Resales have fluctuated around a 4.96 million rate this year.

The number of previously owned unsold homes on the market at the end of October represented 10.2 months’ at the current sales pace, up from 10 months’ at the end of the prior month.

Diminished prospects
"The large number of homes already on the market and the number of those that will appear via foreclosure over the next several months only add to the diminished prospects for existing home sales," Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said before the report.

The median price of an existing home was the lowest since March 2004. Prices fell in all regions of the country, led by the West. Falling home values make it harder to refinance mortgages and have pushed foreclosure filings up 25 percent in October from a year ago, according to RealtyTrac, the seller of default data.

Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier Monday’s report showed resales of single-family homes fell 3.3 percent to an annual rate of 4.43 million. Sales of condos and co-ops declined 1.8 percent to a 550,000 rate.

Purchases declined from the previous month in all regions, led by a drop of 6 percent in the Midwest. Sales fell 1.2 percent in the Northeast, 3.2 percent in the South and 1.6 percent in the West. Compared with a year earlier, sales jumped 37.5 percent in the West, while declining in other regions.

The legal effect
Home sales overall may be weighed down by a federal law that took effect Oct. 1 barring home sellers from providing down-payment assistance to purchasers.

Builders are scaling back residential projects as home sales decline. Construction of new homes plummeted 65 percent through October from a peak in January 2006. The number of building permits issued last month fell to the lowest level since record-keeping began in 1960, a sign that declines in construction will continue to hurt.

Companies are struggling to improve sales alongside a rise in foreclosures. Stuart Miller, chief executive officer of Lennar, the second-largest homebuilder, said the housing market "continues to decline." "Clearly the market is weak," Miller said in comments broadcast from a Nov. 11 UBS conference in New York. "Clearly the supply side of the homebuilding world is dominated by the foreclosures that are coming in faster and more furiously than in the past."