Home prices drop through the floor

December 23, 2008 10:50:50 AM PST
Perhaps it is not too surprising considering the surge in unemployment, the crash of the stock market and the unavailability of credit, but home sales in November came in even worse than expected. The National Association of Realtors reported that sales of existing homes fell 8.6 percent in November to a seasonally adjusted annual rate of 4.49 million units in November. As has happened on several occasions recently, the actual numbers were significantly lower than analysts had expected. The pace of sales of existing homes is down 10.6 percent from a year ago.

"The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," said Lawrence Yun, the trade group's chief economist, in a statement.

As sales dropped, so too did prices, to the lowest prices since February 2004. The national median sales price was $181,300 in November, down 13.2 percent from a year ago when it was $208,800. That year-over-year drop was the largest since the trade group started keeping records in 1968.

The realtor group attributes some of that drop in price to the surge in sales of foreclosed properties selling at a discount. "Sales are rising only in areas with large numbers of distressed properties as bargain hunters take advantage of discounted home prices," Yun wrote, signaling out hubs of foreclosure activity -- California, Nevada, Arizona and Florida.

And the total number of homes increased in November and that means it's still a buyers market, if they can get a mortgage. There are now 4.20 million existing homes available for sale, an 11.2-month supply at the current rate of sales, up from a 10.3-month supply in October. Economists like to see five to six months' worth of supply for a balanced market.

And the news was just as bad for new-homes sales, which were also released this morning. The government reported that sales dropped 2.9 percent from October to a seasonally adjusted rate of 407,000. Compared to a year ago, new-homes sales have dropped 35.3 percent. That's the slowest sales pace since January 1991.

The median sales price for a new home fell to $220,400, down 11.5 percent from a year ago. There are now 374,000 homes available for sale. At the current sales rate, it would take 11.5 months to work through that supply.

"Builders are facing intense competition in many markets from foreclosed homes that are relatively new, and their only option is to slash prices even further," wrote Richard Moody, chief economist with Mission Residential. "This situation is likely to prevail over much if not all of 2009, making it another tough year for home builders."

Bottom line, the housing market has not improved. Lower rates have so far not translated into a surge in home sales. Prices are expected to keep dropping.

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