2006 October 25 Wednesday
Big Drop In Home Sales For September 2006

The National Association of Realtors reports a big drop in home sales for September 2006.

WASHINGTON, October 25, 2006 -

Existing-home sales eased last month, as did the number of homes available for sale – indicating the housing market is stabilizing, according to the National Association of Realtors®.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – dipped 1.9 percent to a seasonally adjusted annual rate1 of 6.18 million units in September from a level of 6.30 million in August, and were 14.2 percent below the 7.20 million-unit pace in September 2005, which was the third strongest month on record.

David Lereah, NAR’s chief economist, said stabilizing sales should build confidence in the housing market. “Considering that existing-home sales are based on closed transactions, this is a lagging indicator and the worst is behind us as far as a market correction – this is likely the trough for sales,” he said. “When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market, and sales will be at more normal levels in the wake of the unsustainable boom that we saw last year.” He noted sales already are improving in some areas.

Total housing inventory levels fell 2.4 percent at the end of September to 3.75 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.

The year-on-year price drop was the biggest since 1968.

The median price of a home sold in September fell 2.2 percent to $220,000 from $225,000 a year ago. It was the biggest year-over-year drop since the trade group began tracking median home prices in 1968.

California home sales tanked.

Statewide, home sales decreased 31.7 percent in September, the association reported, while the median price of an existing house increased 1.8 percent.

The Wall Street Journal has an interesting discussion between housing economists Celia Chen, Christopher Mayer, and Susan Wachter about the likely macroeconomic effcts of the housing market correction. Mayer expects declining interest rates and construction costs to limit the extent of the drop. They have a spirited and well informed discussion on whether adjustable rate mortgages increase the sizes of both housing booms and busts. Chen's estimate for the GDP impact of the housing correction is too small to kick the US economy into a recession.

The bad news is that the correction will take about one half of one percentage point off of GDP growth this year and another three quarters of a percentage point off of growth next year, as the slowing in housing hurts employment, construction activity and reverses the wealth effect.

The good news is that the market is correcting, not crashing -- and other economic drivers are strong enough to withstand the hit.

They also argue that regional differences in the housing market are so large that you have to to look at your own region closely rather than just look at national aggregate numbers.

A recession at this point would amplify the housing price drop and increase the number of mortgage foreclosures. New Jersey is seeing early indications of problems with mortgage payments.

According to statistics compiled by the state's leading real estate foreclosure data service, SheriffSalesOnline.com -- http://sheriffsalesonline.com -- the number of lis pendens filed in the state of New Jersey has risen from 967 in September of 2005 to 1649 in September of 2006 – a breathtaking rise of 71%.

And a year-to-year third quarter comparison for the state of New Jersey reveals an equally dramatic increase of 44% -- from 2486 New Jersey lis pendens filed in the third quarter of 2005, to 3577 filed in the third quarter of 2006.

"Lis pendens court filings are the first legal step taken in the home foreclosure process that indicate a homeowner is behind in his or her payments and headed for foreclosure," says Jeffrey Posner, president of the Fairlawn-based SheriffSalesOnline.com, which provides comprehensive and timely advance notice of such troubled properties in the Lis Pendens, Public Notice and Sheriff List stages to his subscribers.

Still, a few thousand mortgages with late payments is small stuff for a state with millions of people.

Share |      By Randall Parker at 2006 October 25 08:53 PM  Economics Housing

John S Bolton said at October 26, 2006 1:05 AM:

Largest since 1968 probably also means largest since 1938, when prices always went up for houses between those years. The generation to buy out the baby boomers, is less numerous while the growing populations like Latinos, have half the median income of the majority.
Unsustainable bubble phases are distended by an extension of ever lower-quality credit, till you get a situation like the savings and loans in Oklahoma in the 1980's, who gave mortgages to teenagers to buy houses.

Wolf-Dog said at October 27, 2006 11:21 AM:

It appears that one of the main reasons the real estate market became a bubble that caused the prices to attain levels that are difficult to afford for the middle class, was that the average upper class member that already owned a comfortable residence, started buying several houses for investment purposes. I do not have the figures for how many cheap apartments were bought by the upper class as investment, since this would also cause the cheaper residences to become very expensive for the middle class.

John S Bolton said at October 28, 2006 2:01 AM:

The NYT of Friday, 10-27-06, p.C1, reports new home prices down almost 10% from a year ago.
This is the worst in over 35 years.
We're told how demand from immigrants, and illegal alien construction workers labor supply are keeping a building boom going; so how come new house prices are in freefall?
The big house builders should start investigating whether they're not using subcontractors who have illegal alien workers, who not only put many such in one house, but their children too, and then enroll them in the very same schools which are supposed to a prime selling point for the houses under construction.
Attend to this exact matter with care, and in discreet manner find those who retain such illegals, and cut them off from further business. If they don't pay attention to what the're doing or allowing to be done in this regard, the soiling of their own nest will proceed further, with worse effects on prices and starts.

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