Nov. fall in home prices is biggest in 4 decades

U.S. housing sales decline sharply despite cuts in prices and mortgage rates

December 24, 2008|By New York Times News Service

Home sales declined sharply last month, and housing prices posted their deepest decline in four decades as a rapidly slowing economy discouraged many potential buyers from tip-toeing into the market.

Sales of existing homes declined 8.6 percent last month, to a seasonally adjusted rate of 4.49 million, according to the National Association of Realtors, a trade association.

The median price of a home fell 13 percent in November, to $181,300 from $208,000 a year ago.

That was the lowest price since February 2004.

"They're about as god-awful as they can get," said Robert Barbera, chief economist at ITG.

"This is pretty breathtaking stuff."

The troubles of the housing market, which are at the heart of America's financial crisis, are only multiplying as the broader economy deteriorates.

Even though mortgage rates dropped after the Federal Reserve slashed interest rates to record lows near zero percent, economists said that housing would continue to lag as unemployment increases and the spiral of slumping consumer spending and waning industrial growth continues.

The economy was shrinking in the summer, and corporate profits were falling even before the financial crisis struck with full force. Yesterday, the Commerce Department reported that the gross domestic product, the broadest measure of the economy, declined at an annual rate of 0.5 percent in the third quarter as corporate profits fell 1.2 percent.

Analysts are forecasting that those declines will be followed by much larger decreases this quarter, as the longest recession in a quarter-century gains intensity.

The pool of unsold homes grew slightly to 4.2 million last month.

At the current sales rate, it would take 11 months to burn off the excess inventory, which is up from a 10.3-month supply in October.

The Commerce Department also reported that new-home sales dropped to a seasonally adjusted annual rate of 407,000 in November, from a downwardly revised rate of 419,000 in October.

Housing values have plummeted since the peak of the market in July 2006, when the median home price was $230,200.

But the housing bubble burst, sales declined, credit dried up and a flood of foreclosed homes hit the market, a toxic combination of events that pulled median prices down 21 percent to their November levels.

Still, some economists said that home prices will have to fall even further before they dip low enough to entice potential homebuyers.

Joshua Shapiro, chief United States economist at MFR, said that some parts of the country might be only halfway through the retrenchment.

"You need to have a correction, you need to have an adjustment," Shapiro said. "The faster it happens, the better."

Lawrence Yun, chief economist of the National Association of Realtors, said that 45 percent of all home sales were so-called "distressed sales," meaning that the sellers faced foreclosure or they were forced to sell their home for less than the value of the mortgage.

That was slightly higher than the previous month.

"It's probably the largest price drop since the Great Depression," Yun said.

"There needs to be some measure to counter this pessimism. Without housing market stabilization, it'll be very difficult for the economy to recover."

That trend is especially pronounced in regions of the country hit hardest by housing's boom and bust.

In parts of Southern California, more than half of all houses sold in November had gone through foreclosure at some point in the past 12 months, according to MDA DataQuick, a real estate research firm.

"Outside of distressed properties, the market is nonexistent almost," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods.

"You don't want to sell into it. Most people are saying, 'I'll just stay in this house.' "

The Commerce Department said that the median price of a new home sold in November was $220,400, down 11.5 percent from the period a year ago.

It was the biggest year-to-year price decline since a 12.7 percent drop in March.

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