First decline in US housing prices in a decade

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times, September 26, 2006
Homes Post Price Drop for August
By JEREMY W. PETERS

Home prices fell in August compared with a year 
earlier, the first such decline in more than a decade.

The August price data came with a report issued 
yesterday by the National Association of Realtors 
that showed further evidence of deterioration in the housing market.

As median sales prices for existing homes slipped 
to $225,000 from $230,000 in July ­ pushing them 
1.7 percent lower than in August 2005 ­ sales 
fell and the backlog of unsold homes continued to 
rise, the report said. The last time prices fell 
from their year-earlier level was in April 1995.

But while the market slide is almost certainly 
not over, the report suggested that it might be 
beginning to ease. Existing-home sales have been 
falling steadily in recent months, but the 
month-to-month decline in August was the smallest since March.

Sales dropped 0.5 percent from July to August, to 
a seasonally adjusted annual rate of 6.3 million 
units, the Realtors association said. That 
compares with a decline from June to July of 4.1 percent.

?I?d expect home sales to continue softening, but 
perhaps not at the dramatic pace we saw a little 
earlier,? said Celia Chen, director of housing 
economics at Moody?s Economy .com. ?The markets 
are just very overvalued right now.??

If the sales trends are leveling off, however, 
prices still appear set to fall further.

David A. Lereah, chief economist for the Realtors 
association, said the price drop was a taste of 
what the market should expect in the coming 
months. But he predicted that prices would probably improve next year.

?We?re in for a ride right now,? Mr. Lereah said. 
?This is the first of many price corrections for 
the remaining months of the year ­ for at least the next three or four months.?

Until this year, the housing sector had enjoyed a 
boom of more than half a decade, chalking up ever 
higher numbers of sales and rapidly rising 
prices. But it has been shrinking under the 
impact of rising mortgage rates and a slowing economy.

As the Realtors and economists see it, falling 
prices may be just what the housing market needs 
before sales can revive again. In some regions of 
the country last month, sales rose where prices 
fell. In the Northeast, sales rose 1.9 percent as 
the median price fell 3.9 percent, to $271,000. 
In the Midwest the pattern was the same: sales 
were up 0.7 percent and the median price was down 1.1 percent, to $176,000.

The opposite occurred in the West. While prices 
have held steady there this summer, sales have 
fallen. In August, sales dropped 2.3 percent 
while the median price rose 0.3 percent, to 
$345,000. Compared with a year earlier, sales have fallen 22.8 percent.

?Something?s going to give in the West,? Mr. 
Lereah said. ?The correction has not occurred in 
the West yet. Sellers are stubborn there.?

In the South, sales volume in August was 0.8 
percent lower than July 2006 and 7.4 percent 
lower than August 2005. The median existing-home 
price fell 2.6 percent, to $184,000, from July to August.

By comparison, data from the federal government 
has shown prices leveling off for some time. A 
report from the Office of Federal Housing 
Enterprise Oversight released this month showed 
that prices nationwide increased 1.2 percent in 
the second quarter, the weakest gain in almost seven years.

Some economists prefer the government?s price 
data because it tries to adjust for changes in 
the quality and size of homes sold from one year to the next.

The Realtors association numbers do not take into 
account incentives by sellers, which could skew 
their median price numbers higher.

At the end of August, there were so many unsold 
homes on the market that it would take seven and 
a half months to sell them all at the current 
sales pace. The association said that was the biggest backlog since April 1993.

Economists said that as the number of unsold 
homes on the market continued to rise, sellers 
would have little choice but to cut prices.

?With the supply of unsold homes reaching yet 
another record high, there is only one way this 
market can clear, and that is through even 
further price falls,? wrote Dimitry Fleming, an 
economist for ING Bank. For all the worries about 
declining prices, though, Joshua Shapiro, chief 
United States economist with MFR, said the price 
decline in August should be viewed in the context 
of a 111 percent increase in the median 
single-family home price over the last 11 years.

?The underlying trend here is one of stable to 
modestly lower prices after the sharp gains seen 
for many years,? he wrote in a research note. ?It 
should not be a huge shock that we are seeing a price correction.?