Existing Home Sales Plummet in 2006
Thursday, January 25, 2007; 7:22 PM
Sales of previously owned homes fell slightly in December after two consecutive months of modest gains, but took their steepest annual drop since 1989, the National Association of Realtors reported yesterday.
But home prices rose 1.1 percent for the year and the supply of existing single-family houses, townhouses, condominiums and co-ops for sale shrank from November to December -- offering some hope that the housing market may be on the mend, economists said.
However, stock and bond markets fell on concern that these numbers indicated housing problems may not yet be over.
"During the summer, the housing market was like a trauma patient being wheeled in with multiple wounds," said Michael Larson, a real estate analyst for Weiss Research. "There's some momentum back in the market, but I don't think the patient will get off the gurney and walk out the door any time soon."
In all of 2006, 6.48 million homes were sold, down 8.4 percent from 2005, which was the busiest year on record. The drop was the steepest in any year since 1989, when sales fell 14.8 percent from the year before.
In December, homes sold at a seasonally adjusted annual rate of 6.22 million homes, down 0.8 percent from November and 7.9 percent from Dec. 2005.
Todd Vencil, a real estate analyst at BB&T Capital, said he is relieved to see the rate of sales stabilizing in the 6.2 million to 6.3 million range in recent months after peaking at 7.27 million in June 2005.
"We look for up trends, down trends and sideways trends," Vencil said. "We seem to be in a sideways trend now, which is fine because it indicates there's stabilization and stabilization today will allow for recovery later in the year."
David Lereah, the real estate trade association's chief economist, said he sees good news in the numbers, mostly notably in home prices.
The median price of a home in December was $222,000, unchanged from Dec. 2005. The median for all of 2006 was up 1.1 from the previous year, also to $222,000, meaning that half of buyers paid more and half paid less.
"All the doomsayers were saying the bubble was going to burst and it never did in 2006," Lereah said. "We had price increases."
But there's a more muddled picture when it comes to the supply of homes on the market.
The inventory fell 7.9 percent in December from November. If no more homes are added to the mix, that means there's a 6.8 month supply of existing homes for sale.
That shrinkage is typical in the slow winter months, when sellers tend to pull their homes off the market and then relist them in the spring, many analysts said.
Instead, some analysts pointed to the year-over-year increase in supply. The inventory climbed 23.3 percent from Dec. 2005 to Dec. 2006. Until that supply dwindles substantially, home prices will drop well into the future, said Nishu Sood, an analyst at Deutsche Bank Securities. "Demand remains fairly weak and we're likely to see home prices decrease more significantly during the spring selling season," Sood said.
Sood dismisses the price increase for 2006 as insignificant because it factors in numbers from the beginning of the year when prices were still doing well.
Existing home sales, which account for most home sales, were down 15.5 percent in the West, 7.1 percent in the South, 5.8 percent in the Midwest and 5.5 percent in the Northeast. The South includes the Washington region.
The report released yesterday did not include the sales of newly-built homes; the government is scheduled to announce that statistic today. But sales of new homes also appear weak based on the recent earnings reports from builders.
Yesterday, NVR Inc., the builder of Ryan Homes, reported that profit fell 39 percent in the fourth quarter compared with a year earlier. The Reston company posted revenue of $1.63 billion, down 2 percent.