Sales of existing homes fell for the sixth straight month in January, dropping to the slowest sales pace on record. Median home prices were also down and many analysts predicted further price declines in the months ahead given high levels of unsold homes.
The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units. That was the slowest sales pace, going back to 1999, and was seen as evidence that the steepest slump in housing in a quarter-century has yet to hit bottom.
The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago. Particularly alarming, analysts said, was the fact that the inventory of unsold homes jumped to a 10.3 months’ supply, meaning it would take that long to sell the 4.19 million homes on the market at the January sales pace.
That was up from 9.7 months in December and just below a two-decade high of 10.5 months hit in October. During the peak of the housing boom in 2005, the supply of homes relative to sales stood at 4.5 months.
“With sales weak and inventories at extraordinarily high levels, prices are likely to fall a lot more,” said Joel Naroff, chief economist at Naroff Economic Advisors. “Eventually, sellers will end their denial and realize that if they want to unload their homes, they will have to cut prices even more.”
Analysts said one of the problems was a rising tide of mortgage foreclosures, which is pushing even more unsold homes back on the already glutted market.
Sales of existing homes fell by 12.7 percent in 2007, the biggest decline in 25 years, and are down 20 percent from their all-time high set in 2005, the final year of a five-year housing boom which saw sales and prices soar to record levels. Over the past two years, housing has been in a steep downturn that has been made worse by a severe credit crunch as financial institutions have tightened their lending standards in reaction to their multibillion-dollar losses on mortgages that have gone into default.
“With prices expected to continue dropping and banks leery to make loans, few prospective homeowners feel now is the time to buy,” said Michael Gregory, an economist at BMO Capital Markets.
Some analysts saw it as an encouraging sign that sales of single-family homes actually posted a modest increase but the overall number was dragged down by a continued sharp decline in sales of condominiums.
Patrick Newport, an economist at Global Insight, said that condo prices rose more sharply than single-family home prices from 2000 to 2006 but have fallen less in the current downturn. He said until condo prices drop more, buyers are likely to remain leery.
Sen. Charles Schumer, D-N.Y., said the further bad news on existing home sales should be a wake-up call to Congress and the administration that more needs to be done to help the distressed housing market.
“The housing crisis has mushroomed in part due to Washington’s inaction,” he said. “Declining home values cut to the very heart of families’ sense of financial security and our economy’s overall health.”
Sales were weak in all parts of the country in January except the Midwest, where sales posted an increase of 3.4 percent. Sales dropped by 3.6 percent in the Northeast, 2.1 percent in the West and 0.5 percent in the South.
Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year. He said he expected demand to be bolstered in coming months by the housing sections of the $168 billion economic stimulus bill passed earlier this month. Those provisions raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration, an increase that is expected to provide help in high-cost areas of the country such as California.
But other economists said they still did not see a significant turnaround in housing until late this year or possibly early 2009.
“Expect sales and prices to keep falling,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics. “There is no end in sight for the housing disaster.”
The severe slide in housing has depressed overall economic growth and raised concerns the economy could slip into a full-blown recession. The National Association for Busines Economics said Monday that 45 percent of the members of its forecasting panel believe the economy will experience a recession before the end of this year and even those not looking for a downturn believe growth will slow down significantly.