Record Decline In Home Prices

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AP
Sales of existing homes posted a tiny increase in October but the median home price fell by a record amount. Analysts forecast more price declines in coming months as the once-booming housing market undergoes a painful correction.

The National Association of Realtors said Tuesday that existing home sales edged up 0.5 percent to a seasonally adjusted annual rate of 6.24 million last month. It was the first increase after seven consecutive monthly declines.

However, the median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record.

It marked the third straight month that median prices have fallen compared with the same period a year ago, the longest stretch of such declines on record. The median is the point where half the homes sold for more and half for less.

David Lereah, chief economist for the Realtors, said he expected home prices to continue falling for the rest of the year as sellers, accustomed to the booming market conditions of previous years, reluctantly cut their prices.

"Many buyers remain on the sidelines," Lereah said. "After a period of price adjustment, we'll see more confidence in the market and a lift to home sales should be apparent in the first quarter of 2007."

The once-booming housing market, which had been one of the economy's standout performers for the past five years, has experienced a significant slowdown this year, which has dragged down overall economic growth.

Some analysts have worried that the correction in housing could be severe enough to drag the entire country into a recession. However, those fears have eased in recent months as a big fall in gasoline and other energy prices has provided support for consumer spending.

For October, sales were down 2.9 percent in the Northeast and 1.2 percent in the South. However, they rose by 6.4 percent in the West and were unchanged in the Midwest.

The inventory of unsold homes rose by 1.9 percent in October to 3.85 million units, the second highest total on record. It would take 7.4 months to exhaust the backlog of unsold homes at the October sales pace.

Analysts predicted further price declines with inventories of both existing and new homes hovering near record levels.

By region of the country, median prices were down the most in the South, a drop of 7 percent followed by declines of 5.2 percent in the Northeast, 1.2 percent in the Midwest and 0.6 percent in the West.

Lereah said the big price decline in the South could represent not only sellers adjusting their asking prices but also a changing mix of sales with lower-priced areas of the South such as Texas seeing an increase in sales while high-priced areas such as the Washington, D.C., area and Florida still suffering sales declines.