Recession Propels Skid In Housing Sales, Prices
Wednesday, December 24, 2008
The housing market weakened dramatically in November, with prices taking their deepest dive in at least 40 years as buyers refused to wade back in during a growing recession, according to data released yesterday.
The declines cited in government and industry reports were worse than analysts expected and deepened concerns that the housing downturn has entered a new phase, fired by a recession it helped create, economists said.
The market could fall harder as unemployment rises and government and industry efforts fail to stem foreclosures, they said. The economy shrank at a 0.5 percent annual pace in the third quarter, the biggest decrease since 2001, marking the beginning of what economists expect will be a much larger contraction for the last quarter.
The credit crisis and stock market volatility of the past two months helped fuel the slump, economists said. Even with a glut of housing stock and a free-fall in prices, buyers could not be coaxed back. And as prices fall, homeowners are likely to find themselves owing more than their home is worth, another factor in the housing downturn.
"If people are scared to put money in the bank, they are going to be scared to make a big transaction like a house purchase," said Guy Cecala, publisher of Inside Mortgage Finance Publications. "They are likely to sit on the sidelines until they feel better about their financial situation."
Sales of existing homes fell 8.6 percent to a seasonally adjusted 4.49 million units in November compared with October and were down 10.6 percent compared with the same period a year ago, according to data from the National Association of Realtors. The Commerce Department reported sales of new, single-family homes fell 2.9 percent to a seasonally adjusted annual rate of 407,000 in November. It was the slowest sales rate in 18 years and down 35 percent compared with a year earlier.
"We are crossing our fingers that sales rebound from these depressed levels," said Lawrence Yun, chief economist for the Realtors group.
The steep decline in existing home sales dashed hopes that the market was close to stabilizing, said Brian Bethune, chief U.S. financial economist for IHS Global Insight. "It almost looked like we were near a bottom for a time, but it hasn't. Instead we have taken another leg down," Bethune said. "It is not surprising given the state of the economy."
Home prices also tumbled. Median new-home sales prices fell to $220,400 in November, down 11.5 percent from $249,100 a year earlier. The slump in the resale market was even more pronounced: Existing-home prices fell 13.2 percent, to $181,300 from $208,800, the largest drop since the Realtors group began collecting data in 1968 and likely the largest decline since the Great Depression.
The glut of foreclosed homes and distressed sellers in the market have pushed down prices, attracting bargain hunters looking for cheap properties. Prices have fallen to 2004 levels, said Mike Larson, housing analyst at Weiss Research in Jupiter, Fla. "We have wiped out five years of gains," he said. "That is bad news again for anyone who bought at the peak."
Even in regions where sales appeared to be improving, economists saw more evidence of the market's weakness. Existing-home sales in the Western United States increased 17.9 percent compared with the same period a year ago, while the rest of the country saw double-digit declines. But prices in that region fell 25 percent, by far the worst in the country.
"They are bottoming out faster than the rest of the country. I am not sure that is a sign of health at this point," Cecala said. "It just means that they went down faster than the rest of us." Economists have estimated that in some parts of the country, foreclosure sales make up nearly half the market.