Longer housing slump is seen
Too many unsold homes and too few buyers have been driving down home sales and prices lately, and a flurry of news Tuesday offers fresh evidence that the slump is far from over.
Sales of new homes nationwide dropped in May -- the fourth decline in the last five months, the Commerce Department said. And prices of existing homes declined 2.1% in April from a year earlier, according to a widely watched report by Standard & Poor’s/Case-Shiller.
“No region is immune to the weakening price returns,” said economist Robert Shiller, one of the report’s authors.
Of the 20 U.S. metropolitan markets tracked by Shiller, San Diego saw the second-steepest decline in prices, at 6.7% last month compared with the year before. That was behind only Detroit, where prices fell 9.3%. Los Angeles’ housing market, which has been showing more stamina than other parts of California, experienced a 2.6% drop.
The data mirror recent economic forecasts of flat to slightly lower home prices in California over the next two years. On Tuesday, economists at Chapman University in Orange predicted that housing prices would drop 2.4% year over year in 2007 and fall an additional 4.4% in 2008.
Meanwhile, Lennar Corp., one of the nation’s biggest home builders, said its struggles to sell homes would continue into the foreseeable future.
On Tuesday, the Miami-based company swung to an unexpected loss in its second fiscal quarter ended May 31. It lost $244.2 million, or $1.55 a share, including one-time charges, compared with a profit of $324.7 million, or $2, a year earlier. Revenue fell 33% to $2.7 billion.
Lennar also forecast a loss for the current quarter.
The builder has cut back on housing starts by more than 50% year over year as it unloads inventory, Chief Executive Stuart Miller said.
“Market conditions have eroded so much over the past six months that we are now focused on limiting the loss for the year,” he said, adding later that uncertain conditions make him “suspect that we will not know that a recovery is coming until it is upon us.”
Builders are facing the worst of the housing downturn as they work feverishly to sell off their inventories by slashing prices and offering incentives to attract skittish buyers.
But their efforts aren’t taking hold fast enough. In May, sales of new single-family homes fell 1.6% from April to a seasonally adjusted annual rate of 915,000 units, the Commerce Department said. The May sales pace was 15.8% below a year earlier. At that rate, it would take 7.1 months to sell off the supply of unsold homes, the report said. Sales declined 1.9% in the West, which includes California.
The median new-home price nationally, the point at which half the homes are sold for more and half for less, was $236,100 in May, down about 0.9% from a year earlier, the Commerce Department said.
“The home sales numbers are consistent with the housing market hitting the bottom -- or coming close to it,” said Mark Vitner, senior economist with Wachovia Corp.
The housing slump is also weighing on consumers’ outlook. The Conference Board reported Tuesday that its index of consumer confidence declined to a worse-than-expected 103.9 in June from an upwardly revised 108.5 in May. The June number was the lowest since last August.
Vitner sees the housing market remaining soft into 2009 as prices nationwide continue to tick down before rebounding.
“We’re not out of the hole yet,” he said, “but it’s not a big hole.”
Yet, he and others warn that the fallout from the sub-prime mortgage mess, in the form of mounting delinquencies and foreclosures, has yet to play out.
And now there are signs that the problems with aggressive lending to sub-prime borrowers during the tail end of the housing boom afflicted the prime mortgage market as well.
Standard & Poor’s reported Tuesday that mortgage loans made in 2006 to borrowers who used little or no documentation to verify their incomes are going bad four times as fast as similar loans made in 2004.
These so-called Alt-A borrowers are considered less risky than sub-prime borrowers because they generally have good credit histories.
“During 2006, lenders became increasingly comfortable with offering higher-risk loans in substantially greater numbers, not only to sub-prime homeowners but also to Alt-A homeowners,” Standard & Poor’s analysts said.
“The most disconcerting trend,” the S&P; report said, “is how quickly the performance of these delinquent borrowers has deteriorated.”
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