Sales of existing homes fell in March, the seventh drop in the past eight months, as the spring sales season got off to a rocky start.
The median price of a home was down compared with a year ago, and some economists predicted home prices could keep falling for many more months given all the troubles weighing on housing, from a severe credit crunch to a rising tide of foreclosures.
The National Association of Realtors reported Tuesday that sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.
The median price of a home sold last month was $200,700, a decline of 7.7 percent from a year ago and the seventh consecutive year-over-year price drop. It was also the second biggest decline following a record 8.4 percent drop in February. These records go back to 1999.
Patrick Newport, an economist with Global Insight, said he believed existing home sales would keep declining for another six months, with home prices falling well into 2009 given all the headwinds facing the housing market, including sinking consumer sentiment.
“All this adds up to another dismal house-selling season,” Newport said.
Many economists believe the country has already entered a recession, led by a two-year slump in housing and a related credit crunch that has led to billions of dollars in losses at major financial institutions. But President Bush disputed that view Tuesday.
“We’re not in a recession,” he told reporters during a joint news conference in New Orleans with the leaders of Canada and Mexico. “We’re in a slowdown. ... there’s no question we are in a slowdown.”
Democrats used the latest weak housing report to argue that Congress must pass legislation being considered this week in a House committee that would authorize the Federal Housing Administration to take on $300 billion in new loans for as many as 1 million distressed homeowners.
The legislation is aimed at helping homeowners whose mortgages are now larger than the value of their homes negotiate into lower, more affordable mortgages rather than face the prospect of defaulting on their current mortgage.
Realtors chief economist Lawrence Yun said a survey showed 18 percent of homes up for sale in March had negative equity, meaning the mortgage was larger than the value of the home. This percentage, which represented homes that were either in foreclosure or involved in a “short sale” in which the house was being sold for less than the value of the mortgage, was up from levels around 3 percent during the 2002-2006 housing boom.
Sen. Charles Schumer, D-N.Y., said the increase in homes with a negative equity underscored the need for Congress to act quickly “to prevent this crisis from getting any worse.”
On Wall Street, stocks pulled back on Tuesday after quarterly reports from corporate giants AT&T Inc., Dupont and McDonald’s Corp. left investors unimpressed. The Dow Jones industrial average fell 104.79 points to close at 12,720.23.
Yale economist Robert Shiller, who developed one of the widely followed gauges of home prices, said in a speech Tuesday that home prices, which have already fallen about 15 percent from their peak in 2006, may fall further than the 30 percent drop experienced during the Great Depression of the 1930s, so far the biggest decline in home prices in the country.
“Basically we are in uncharted territory,” Shiller said, noting that the 85 percent rise in home prices from 1997 to 2006 after adjusting for inflation had represented the biggest housing boom in U.S. history, so the fall in prices could be just as historic.
The median sales price of $200,700 in March was up from a February median of $195,600. Analysts said this was statistically meaningless because the monthly price changes are not adjusted for seasonal variations and prices always rise in March at the start of the spring sales season.
The March sales decline, which was in line with expectations, followed a 2.9 percent February sales increase, which had been the first advance after six straight sales declines. Sales were down 19.3 percent compared with March 2007.
Mark Zandi, chief economist at Moody’s Economy.com, said he believed home sales could hit bottom this spring, but he said the fall in prices was only half complete, with further declines needed to work off still large levels of unsold homes.
“It will be a long and painful end to the housing downturn because it will take a lot more price cutting to work off all of the inventory that is out there,” he said.
The inventory of unsold homes rose 1 percent in March to 4.06 million homes, representing a 9.9 month supply at the current sales pace, as rising foreclosures dump more homes on the market.
For March, sales were down 6.5 percent in the Midwest and 3.5 percent in the South, but they increased by 2.2 percent in both the Northeast and the West.
While the Federal Reserve is expected to cut interest rates further at its meeting next week in an effort to jump-start the economy, Yun cautioned that further rate cuts might actually drive mortgage rates higher as financial markets begin to worry more about inflation.