Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years an industry trade group said Tuesday. A separate report showed that t he nationwide decline in home prices accelerated in July, posting the steepest drop in 16 years.
Home prices have fallen by more every month since the beginning of the year, according to the S&P/Case-Shiller home price index released Tuesday.
Sales of existing single-family homes dropped by 4.3 percent in August from July, the National Association of Realtors said. Sales dropped to a seasonally adjusted rate 5.5 million units a year, the slowest pace since August 2002.
The housing market has been battered by the steepest downturn since at least the early 1990s. Problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising defaults in subprime mortgages.
Between concern about the job market and worries about the overall economy, consumer sentiment also has taken a hit. The Conference Board says its index of consumer confidence fell this month to the lowest level in nearly two years.
The turmoil in the housing market is bringing steep prices cuts. An index of 10 U.S. cities fell 4.5 percent in July from a year earlier, the biggest monthly drop since July 1991.
"The further deceleration in prices is still apparent across the majority of regions," said Robert Shiller, chief economist for MacroMarkets LLC.
A broader index of 20 cities fell 3.9 percent in July over last year, with 15 of 20 cities reporting that prices fell.
The five cities where prices are still rising — Atlanta, Charlotte, N.C., Dallas, Portland, Ore., and Seattle — have reported growth is slowing. Atlanta and Dallas are close to moving into negative territory, S&P said.
Shiller, an economist at Yale University, told lawmakers in written comments last week that the loss of a boom mentality among consumers poses a "significant risk" of a recession within the next year.
His comments came a day after home buyers and other borrowers got some welcome news when the Federal Reserve cut a key interest rate by a half-percentage point to 4.75 percent. It was the Fed's first cut in four years.
The housing slowdown and decline in credit availability have triggered worries that the economy could go into a recession, spurring the Fed to act. Economists differ on whether the Fed will cut rates again during two meetings before year's end.
Meanwhile, the slowdown in new home construction shows little signs of letting up. Lennar Corp., one of the nation's largest homebuilders, reported a $514 million loss for the latest quarter on sharply lower revenues Tuesday because of falling home prices and hefty charges to write down land values. The Miami-based homebuilder has been cutting prices and offering incentives to get rid of homes, which has cut into profits.
Homebuilders have been forced to absorb charges to write down the value of homes they cannot sell, or to forfeit deposits on land they no longer want to buy. Lennar said it has cut its work force by 35 percent and expects continued job cuts in the fourth quarter.
"It is already well-documented that the housing market has continued to deteriorate throughout our third quarter. Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward," said Stuart Miller, president and chief executive. "Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates."