Trend for existing homes worsens
Sales of existing homes fell more than expected in April while prices slid for a record ninth consecutive month, indicating further troubles ahead for the housing market.
The National Assn. of Realtors reported Friday that sales of existing homes dropped by 2.6% last month from March to a seasonally adjusted annual rate of 5.99 million units, the slowest sales pace in nearly four years.
The median price of a home fell to $220,900, an 0.8% decline from the median price a year earlier. The median is the point at which half the homes sold for more and half for less.
The slide in existing home sales came after a report Thursday that showed a 16.2% surge in sales of new homes in April that occurred as the median price of a new home fell by a record 11.1% from the previous month.
Analysts said the disparity in sales of new and existing homes for April reflected in part the decision by builders to aggressively cut prices on new homes to unload inventory while owners of existing homes were still reluctant to lower their asking prices.
“It is only a matter of time before homeowners realize that the dream is over and that price cuts are now necessary to sell their homes,” said Peter Schiff, president of Euro Pacific Capital, an investment firm in Darien, Conn.
The supply of existing homes for sale shot up to a record total of 4.2 million in April, an increase of 394,000 from the March supply. Analysts predicted that the inventory surge would further depress prices.
“We’re swimming in supply,” said Mike Larson, a real estate analyst with Weiss Research of Jupiter, Fla., who cited a number of factors for the unsold homes. “Unrealistic sellers, stuck flippers, stretched borrowers, foreclosures. They’re all contributing to a surge in homes on the market.”
Housing enjoyed a boom in which sales of both new and existing homes set records for five straight years until 2006. The Realtors group is forecasting that existing home prices could decline by around 2% this year, which would be the first setback for an entire year in records that go back four decades.
But Lawrence Yun, senior economist for the Realtors group, noted that the expected price decline would be modest compared with the 50% appreciation in home prices that occurred during the boom period.
It had appeared that housing sales might be hitting a bottom at the end of last year. However, since that time trouble in the mortgage market, which has seen many sub-prime lenders forced to stop operations, has worsened the housing downturn. Sub-prime mortgages were made available to borrowers with weak credit histories.
“We’ve been anticipating slower home sales because many sub-prime loan products are no longer available,” Yun said. “Fortunately, a wide availability of conventional mortgage products ... will help stabilize the market going forward.”
Yun said the big rise in supply could be an indication that sellers were testing the market in the early spring in hopes of selling their homes and moving up to larger units, which he said would be a positive sign of a rebound in housing.
But other analysts were not as optimistic, expressing concerns that housing could remain under downward pressure for the rest of this year and stage only a modest recovery in 2008.
“The continued decline in existing-home sales and the huge rise in inventories put in doubt the hopes that the housing market is stabilizing,” said Joel Naroff, chief economist at Naroff Economic Advisors.
The troubles in the housing sector have depressed overall U.S. economic activity, which slowed to a growth rate of just 1.3% in the first three months of this year, the slowest rate in four years.
For April, sales of existing homes were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8% in April from the March sales pace. Sales were down 1.7% in the West, 1.2% in the South and 0.7% in the Midwest.
