Annual existing home prices declined in August for the first time in more than a decade as sales fell for a fifth straight month.
The year-over-year drop in median sales prices represented a dramatic turnaround in fortunes for the once high-flying housing market, which last year was posting double-digit price gains.
“Pop goes the housing bubble,” said Joel Naroff, chief economist at Naroff Economic Advisors. He predicted prices will tumble farther as home sellers struggle with a record glut of unsold homes.
The National Association of Realtors reported Monday that sales of existing single-family homes and condominiums dropped 0.5 percent last month to a seasonally adjusted annual rate of 6.30 million units. That was the fifth straight monthly decline and left sales 12.6 percent below the pace of a year ago.
The slowdown in sales meant that the inventory of unsold homes rose to a record 3.92 million units at the end of August. At last month’s sales pace, it would take 7.5 months to clear out the backlog of unsold homes, the longest stretch since April 1993.
The median price of a home sold last month fell to $225,000. That was down 2.2 percent from July and down 1.7 percent from August 2005. That marked the first year-over-year drop in home prices since a 0.1 percent fall in April 1995.
Last year, when the five-year housing boom was reaching its peak, median prices posted a string of double-digit gains on a year-over-year basis. The median price is the point where half the homes sell for more and half for less.
David Lereah, chief economist for the Realtors, predicted price declines would continue for the rest of this year as sellers adjust asking prices downward in light of the inventory glut.
“This is the price correction we’ve been expecting,” Lereah said. “With sales stabilizing, we should go back to positive price growth early next year.”
But some home sellers around the country, worried that cutting prices may not be enough, have been offering incentives to attract buyers, including in some cases new cars.
Dave Armon, who lives in the New York City suburb of Pelham Manor, said he started out asking $1.6 million for his six-bedroom Tudor-style home three months ago — below the $1.82 million a neighbor received — but has slashed the price by $300,000 because he has attracted few interested buyers.
“l am sitting here thinking maybe if I buy a car and park it out front with a bow on it, that will help,” he said.
The drop in existing home sales in August was not as steep as expected and some said the recent declines in mortgage rates may help keep the housing market from falling off a cliff.
Bolstered by the lowest mortgage rates in more than four decades, housing set sales records for both new and existing homes for five consecutive years through 2005. However, this year, analysts are forecasting that sales are likely to fall by 10 percent.
The worry is if the decline could become so severe that it would mirror the bursting of the stock market bubble in 2000, which helped push the country into a full-blown recession. That is something Federal Reserve Chairman Ben Bernanke and his colleagues are monitoring carefully.
Richard Fisher, president of the Dallas Federal Reserve Bank, said in a speech Monday that housing was in a “serious correction” and along with falling auto sales represented the economy’s major weak points.
The report on sales of existing homes followed news last week that construction of new homes plunged by 6 percent in August and that builder confidence dropped in September for the eighth consecutive month and now stands at the lowest point in more than 16 years.
“The housing slowdown is about a year old. It probably has another year to run,” said Patrick Newport, an economist at Global Insight.
Sales of single-family homes were unchanged at an annual rate of 5.51 million units in August, the same as July. This sales pace was 12.3 percent lower than a year ago.
Sales of condominiums fell 3.5 percent to an annual rate of 793,000 units, which represented a 14.5 percent drop from the condo sales pace in August 2005.
By region of the country, sales of single-family homes and condominiums in the South fell by 0.8 percent in August compared with July and were off 2.3 percent in the West. Sales rose by 1.9 percent in the Northeast and 0.7 percent in the Midwest.
Median prices were down in all regions of the country except the West, where the median price rose by 0.3 percent from a year ago.