US existing home sales fall to lowest in a decade
Weakness in housing market continues as median prices drop 4.6% year-on-year
WASHINGTON – SALES of existing United States homes fell to the lowest level in nearly a decade last month, while the median price for a home dropped for the fifth straight month.
The National Association of Realtors (NAR) said yesterday that sales of single-family homes and condominiums dropped by 0.4 per cent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on record going back to 1999.
The median price of a home sold in January slid to US$201,100 (S$283,070), a drop of 4.6 per cent from a year ago. The fall in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.
Sales were weak in all parts of the US except the Midwest, where sales posted an increase of 3.4 per cent. Sales dropped by 3.6 per cent in the North-east, 2.1 per cent in the West and 0.5 per cent in the West.
Sales of both existing homes and new homes tumbled for a second straight year in 2007, as the housing industry was battered by a severe credit crunch that hit in August.
This was around the same time that major financial institutions began reporting multibillion-dollar losses on their investments in risky sub-prime mortgages – loans made to home owners with weak credit.
The market for sub-prime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.
Mr Lawrence Yun, chief economist for the NAR, said he believed that the housing market may be on the verge of bottoming out, with a rebound expected to start towards the end of this year.
‘Sub-prime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,’ he said.
He said he expected demand to be bolstered in the coming months by the actions of Congress in the economic stimulus Bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.
Not everyone agrees.
Housing is ‘a long-term negative that’s going to continue’, Mr Joshua Shapiro, chief US economist at Maria Fiorini Ramirez in New York, said before the report.
‘The trends are still weak. Prices haven’t come down enough.’
Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.
ASSOCIATED PRESS, BLOOMBERG NEWS (Source: The Straits Times 26 Feb 08)