Sales of existing homes fell for a fifth consecutive month in January, an industry trade group reported Tuesday in the latest sign that the once-sizzling housing market is cooling rapidly.
The National Association of Realtors reported that home sales fell 2.8 percent to a seasonally adjusted annual rate of 6.56 million units, the slowest pace in two years. The news came a day after the government reported that sales of new homes fell 5 percent in January.
Both declines were bigger than expected even though the weather in January was the mildest in more than 100 years.
“There is complete harmony among the indicators as far as what’s happening here,” said Richard DeKaser, chief economist for National City Corp. “The message here is that the five-year boom peaked in mid-2005, and we’ve been moving downward intermittently ever since.”
Even with the slowdown in sales, prices for previously owned homes held steady in January with the median price at $211,000, unchanged from the December level.
Sales of both new and existing and new homes set records for the fifth straight year in 2005, but analysts believe that sales of existing homes will fall by around 5 percent this year as rising interest rates cut into demand.
“It is only a matter of time before prices start falling sharply,” said Joel Naroff of Naroff Economic Advisors.
His view is not universally shared, but many analysts agree that prices are bound to flatten and possibly decline in some markets over the next year or two as demand slows.
Mark Zandi, chief economist for Moody’s Economy.com, said he expects prices to decline in about one-third of the nation’s housing market and post double-digit declines of 10 percent or more in perhaps a dozen markets, including San Diego, Miami, Long Island, California’s Orange County and Phoenix, Ariz.
Sales of existing homes last month were down in all regions of the country except the South, which saw a 2.6 percent increase.
The biggest sales decline last month was a 10 percent drop in the Northeast. Sales were down 7.7 percent in the Midwest and fell 3.5 percent in the West.
In the new-home market sales rose in the West and fell in every other market.
The five consecutive declines in existing home sales represented the longest stretch of weakness since a stretch of six monthly declines from July through December of 1999.
DeKaser said his analysis of seasonal trends indicate the market reached a major turning point in mid-2005.
“My best judgment is that we are on track for a two-year slide of about 20 percent in terms of unit home sales, and we’re roughly a quarter of the way into that trajectory,” he said.
The inventory of unsold homes rose by 2.4 percent at the end of January to 2.91 million existing homes available for sale, which represents a 5.3-month supply of homes at the January sales pace. The new-home inventory has risen to a record 528,000.
Analysts said the rising supply of unsold homes will likely slow the rapid increase in home prices of recent years. Instead of double-digit gains, Lawrence Yun, senior economist at the Realtors, said he was looking for a more moderate rise of 5 percent in prices this year.
Zandi said the rate of new-home construction is too high, given the underlying demand, but so far the problem is small and manageable.
Sales have suffered the most in high-priced markets including parts of California, Florida and the Northeast, which are more sensitive to increases in mortgage rates. Mortgage rates have been rising gradually with the typical 30-year mortgage now at 6.26 percent, according Freddie Mac, compared with about 5.5 percent in mid-2005.
Many analysts believe 30-year mortgages will rise to between 6.5 percent to 7 percent by the end of this year.
Analysts pointed out that much of the weakness in home sales stems from the rapidly cooling condo market, where activity has been boosted by speculators in recent years. The condo sales rate fell 10.6 percent last month, while sales of single-family homes fell at a more modest 1.5 percent rate.
The South, which was battered by last year’s Gulf Coast hurricanes, is seeing a rebound in some areas, helped by people looking for homes to replace ones damaged by the storms. The Realtors said that home sales in New Orleans were up 40 percent in January with Baton Rouge, La.; Mobile, Ala.; and Houston seeing big gains in home sales as well.
But for the country as a whole, Yun forecast that sales will probably decline by 5 percent from last year’s record pace of 7.075 million units.
“The housing market is shifting away from the record-breaking pace of last year to a more sustainable pace,” Yun said.