Dive in Home Prices Sends Sales Up

Despite Gains, Reports Show National Housing Market Remains Weak

Home sales are up because prices have plunged in several parts of the country, according to three reports released yesterday.

The reports, which measured different time periods and home types, indicate the housing malaise continues even though the sales rate is stabilizing and month-to-month price deterioration is easing.

"It's a market that's mired in the muck," said Michael Larson, an analyst with Weiss Research. "We're not sinking any farther, but we haven't dug ourselves out of this thing, either. Sales and prices are still at depressed levels."

In July, sales of new single-family homes rose 2.4 percent from the previous month, to a seasonally adjusted rate of 515,000, according to Commerce Department figures released yesterday. That's the biggest jump since April but it's still 35 percent below the previous year's July increase.

The same report also showed that the median home price in July was $230,700, meaning half the houses sold for more and half for less. The median was 6.3 percent lower than it was last July. Numbers released Monday for previously owned homes also showed higher sales and lower prices.

The Standard & Poor's/Case-Shiller home price index, also released yesterday, showed a steeper price decline. That gauge found that prices of previously owned single-family homes in the second quarter fell 15.4 percent nationwide compared with the corresponding period last year -- the steepest quarterly decline since 1987.

The index measures repeat sales of single-family houses. The report also breaks out numbers for the nation's major metropolitan areas, including a 20-city index that showed prices falling 15.9 percent in June compared with June 2007.

The sharpest drops took place in areas where prices once soared, such as Las Vegas, Miami and Phoenix. Prices fell 28 percent and more in those areas over the year. The Washington area fared better, with prices falling 15.7 percent.

David M. Blitzer, chairman of Standard & Poor's index committee, said price erosion has been slowing for the past few months nationwide, with some areas even showing gains.

The Office of Federal Housing Enterprise Oversight, which oversees mortgage industry giants Fannie Mae and Freddie Mac, reached a similar conclusion when it released its own index yesterday, showing that prices slid 4.8 percent in the second quarter from the comparable period a year earlier. The Case-Shiller index has tended to show sharper decreases than OFHEO's; it includes types of homes not generally included in the government index, including more with subprime mortgages.

"The most overbuilt areas in the country -- including California, Nevada, Arizona and Florida -- contrast greatly with most other states, where prices are declining more moderately or even increasing," Patrick Lawler, OFHEO's chief economist, said in a statement.

OFHEO singled out tightening credit conditions and the high supply of homes as the most vexing obstacles to the housing market's recovery.

David Seiders, chief economist of the National Association of Home Builders, said he hopes a new tax incentive for first-time home buyers will help whittle away the inventory. "I'm hoping that will help solidify the market in the second half of this year," he said. "The idea is to haul some demand into the market in this weak period."

But about three-quarters of the banks surveyed by the Federal Reserve recently said they are tightening lending standards, even for credit-worthy borrowers.

That's creating "a vicious loop," said Bob Walters, chief economist at Quicken Loans, an online lender.

Lenders keep tightening their standards to avoid losing more money, which means fewer buyers will have access to financing, which in turn leads to price drops, Walters said. "The million-dollar question is: What breaks that loop?"