Thursday, January 24, 2008
A short time ago, the National Association of Realtors reported that existing home sales fell 2.2 percent in December, following a slight increase in November, and that the inventory of unsold homes declined from 10.1 months to 9.6 months.
While the relative stabilization in sales volume and inventory is sure to elicit more calls that the "bottom in housing" has finally been reached, another important variable is nowhere near making a bottom and this one is much more important both to potential buyers and sellers - home prices.
As long as inventory is high and sales are low, prices will continue to fall.
With a full year of data now in for 2007, the median sales price of existing homes fell an even 6.0 percent, from $221,600 in December of 2006 to $208,400 last month. The median price of single-family existing homes fell for the first time in 40 years.
Price weakness was more pronounced in areas that saw the steepest price appreciation in recent years, the median price falling 11.1 percent in the West and 8.9 percent in the Northeast last year.
Lawrence Yun, NAR chief economist, said the market is experiencing uncharacteristic weakness. “Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate,” he said. “Home prices are lower, mortgage interest rates continue to decline and incomes are higher, but many potential buyers are delaying a purchase. The fall in inventory in December is encouraging, but inventories remain elevated and buyers have a clear edge over sellers in many markets."
That was a remarkable lack of spin by Mr. Yun - people will be shocked.