Home sales tumble, prices are near 9-year low

WASHINGTON Mon Mar 21, 2011 4:56pm EDT

An advertisement for a reduced price is seen outside of a home for sale in Dallas, Texas September 24, 2009. REUTERS/Jessica Rinaldi

An advertisement for a reduced price is seen outside of a home for sale in Dallas, Texas September 24, 2009.

Credit: Reuters/Jessica Rinaldi

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WASHINGTON (Reuters) - Sales of previously owned U.S. homes plunged in February and prices hit their lowest level in nearly nine years, indicating a housing market recovery was still a long way off.

The National Association of Realtors said on Monday sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.

The weak sales were the latest evidence of the malaise in the housing sector and confirmed it would remain outside the strengthening and broadening economic recovery.

"The housing market is still very depressed and a major drag on the economy, especially household net worth," said Chris Christopher, a senior economist at IHS Global Insight in Lexington, Massachusetts.

Economists had expected a decline of only 4 percent to a 5.15 million-unit pace. The actual drop was greater than even the most pessimistic forecast in a Reuters survey of 53 economists.

Analysts said harsh winter weather in January could have curbed February sales. Existing home sales are measured when contracts are closed and last month's sales decline was telegraphed by a drop in January's pending contracts.

The Realtors' group also said tight credit conditions and home appraisals that fell short of agreed-upon selling prices weighed on sales.

A glut of homes on the market and a flood of foreclosures are holding back recovery in the housing sector, whose collapse helped to tip the U.S. economy into its worst recession since the 1930s.

In addition to the weak housing market, rising crude oil prices are a threat to the economy's recovery and a survey on Monday showed about three-quarters of Americans were scaling back spending because of high gasoline prices.

PLUNGING HOUSE PRICES A WORRY

U.S. financial markets largely ignored the data, with stocks on Wall Street ending 1.5 percent higher. Prices for U.S. government debt fell and the dollar hit a fresh 4-1/2-month low against the euro but rose against the yen.

Though economists cautiously hope an improving labor market will lift home sales in the months ahead, plunging house prices could throw a spanner in the works.

NAR said the median home price dropped 5.2 percent in February from a year earlier to $156,100, the lowest since April 2002, in a sign of the relentless downward pressure on prices from a market flooded with foreclosure sales.

"If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market," said Lawrence Yun, the trade group's chief economist.

Data last week showed a plunge in housing starts and the government on Wednesday is expected report a marginal rise in new single-family home sales in February. Home resales make up more than 90 percent of national sales and economists said they would continue to weigh on new home sales and building.

Foreclosures and short sales, which typically occur below market value, accounted for 39 percent of transactions in February, the highest since April 2009, up from 37 percent the prior month, the trade group said. All-cash purchases made up a record 33 percent of transactions in February.

According to the Realtors' group, new home prices have been running 45 percent higher than existing home prices, a premium that is historically about 15 percent, indicating previously owned homes are selling well below the cost of construction.

At February's sales pace, the supply of existing homes represented an 8.6 months' supply, up from 7.5 in January. A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.

"Inventory is still high, about a third higher than it was pre-recession. We are not going to see any bounce back in new home sales until the inventory of existing home sales gets worked down," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"We don't even know what the inventory is. We see a visible supply but then there is a shadow supply that comes on and off the market depending on the time of the year. It's still a morbid market on a national level."

Sales last month fell across the board, with multifamily dwellings declining 10 percent and single-family home units dropping 9.6 percent. Compared with February last year, overall sales were down 2.8 percent.

While sales plunged in all regions last month, economists said the pattern was likely to become less uniform in the months ahead, with regions where the labor market is fairly strong showing more life than others.

(Editing by James Dalgleish)

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Comments (27)
MediocreFred wrote:
Home prices fall. Is this a surprise to anyone?

Real estate prices follow jobs. Few jobs, few buyers.

Credit availability is now dependent on higher FICO scores.
Many potential buyers are in the long process of credit restoration.
The supply of borrowers is shrinking.

Down payment requirements are pushing 20%.
Our national savings rate is improving, but started from a historically low point. Savings take time.

A humongous shadow inventory is lurking.
Our confidence in the honesty of all kinds of bank numbers has been undermined by the fraudulent cover ups enabled by our government.

The treasury and the Fed are colluding to suppress borrower protections.

The secondary mortgage market is under attack.

Interest rates are rising from artificial lows.

Home interest tax deductions are threatened.

Back in Econ 101 counterproductive government policy was described as “mistakes”. For example, a modest provision in the Tax Reform Act of 1986 crushed Real Estate.
What we are seeing now are “mistakes” that promise to be a drag on real estate for awhile. Next time you read headlines about improving conditions or price “bottoms”, do a gut check on the above items.

Mar 21, 2011 11:10am EDT  --  Report as abuse
DrJJJJ wrote:
What makes anyone think home prices will recover? Think again, this is the new normal-monster government and debt and no will to change!!

Mar 21, 2011 12:06pm EDT  --  Report as abuse
justiceserved wrote:
As the Managing Director of Crossroads Finance, a discount lender in NY,NJ,& CT I can tell you that you can still get loans with 5%, or less down, and the rates are near the historic lows we saw last year. The change that has occurred is the lack of pay option arms(negative am) loans given to people that were not qualified to begin with for such a loan, the addition of FICO requirements and the higher subsequent coste to FHA, and the lenders’ more stringent application of FICO standards and pricing adjustments when determining who is a qualified borrower and what the risk-based rate should be. There are still stated programs for those with high enough FICO’s, and reserves which are held by the lenders as a portfolio product so they are much more prone to be stringent as the loan will not be resold. We (Crossroads) have spoken out about the loose lending standards and no skin in the game loans since the mid 90’s and finally they are gone, which is a good thing. Now for the bad news. The people that took these loans created the demand, and bidding wars at the lower end of the market that rippled through the entire housing market and created much of the run-up in prices. Now that these people are no longer in the market the bottom has literally fallen out and prices will return to more realistic historical levels in relation to demand/incomes. This will of course not be without pain for those that overpaid for housing in the run-up. To stabilize prices there must be quality blue collar and middle class jobs created to replace those that were lost since 2000. Since many of these jobs went overseas, or the power has shifted from employee to employer with a higher unemployment rate this will take a long time to shake out. Mild inflation over a decade or more should help as well, increasing housing prices to establish a floor which currently has not been established. Another factor is not only working with those people who are under water, but trying to prevent as many people as possible from abandoning their property, which only damages the market further. Those that walk away should not be able to get loans that are resaleable for 7 years after the abandonment. This would include Fannie/Freddie backed loans. This would mean these borrowers would either have to pay a premium in rates & fees with a private lender that would be a portfolio loan, or they would have to wait to purchase another home. This is another important step to help stabilize the market. You may find us in the archives of the CBS Evening News with Katie Couric. All these issues will eventually be rectified but not without displacement & pain which both the banking system, and government, must try to minimize.

Mar 21, 2011 12:23pm EDT  --  Report as abuse
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