Housing Crash Continues

By: Dawn Wotapka and Alan Zibel

Here’s even more bad news for housing: Sales of previously occupied homes in the U.S. fell last month. September’s existing-home sales decreased by 3.0% – more than expected – from a month earlier to a seasonally adjusted annual rate of 4.91 million, the National Association of Realtors said Thursday.

The market is “in a holding pattern. It’s not breaking out,” said Lawrence Yun, the trade group’s chief economist. (We’ll point out that this holding pattern has been going on for some time.)

The results show that the housing crash continues. The foreclosure crisis drags on, exacerbated by the fact that many Americans owe more on their homes than they’re worth. That has plenty of would-be buyers jittery and stuck on the sidelines. In addition, requirements for loans are tighter than ever and, now, the size of loans backed by government entities including Fannie Mae and Freddie Mac have fallen, hurting housing even more. The limits, which went into effect at the start of this month, vary by location but are now $625,500 in expensive markets such as New York and San Francisco, down from $729,750.

According to the Realtors, the median sales price came in at $165,400, down 3.5% from $171,400 a year earlier, showing that the nation’s depressed home values have yet to stabilize.

The inventory of previously owned homes listed for sale, meanwhile, fell at the end of September to 3.48 million. That represented an 8.5-month supply at the current sales pace, slightly above the healthy level of about six months. (Keep in mind that plenty of would-be sellers have pulled their homes off the market or are waiting to sell.)

Foreclosures and other distressed properties represented about 30% of sales, showing such deals remain a big part of the battered marketplace. Investors purchased 19% of homes in September, up a hair from a year earlier. First-time buyers accounted for 32% of deals.

Here’s what industry watchers had to say:

Ian Shepherdson, economist, High Frequency Economics: “With mortgage demand still dead we expect no serious near-term movement. Prices continue to decline, with the y/y rate trending at about -4.5%. This is a significant barrier to recovery, because most people tend not to want to borrow multiples of their annual incomes to purchase depreciating assets, no matter how low is the nominal mortgage rate. Housing will recover in time as the labor market picks up and people start moving around the country to take up new jobs, but for now the market is dead.”

Jed Kolko, economist, Trulia: “Today’s month-on-month drop in existing home sales won’t be the last drop we see. The current month-on-month decline in home-purchase mortgage applications, released by MBA yesterday, indicates that sales – which lag mortgage applications – will continue downward.”

Dan Oppenheim, analyst, Credit Suisse: “We think these levels of months’ supply continue to indicate current and future pricing pressure, suggesting downside risk to existing and new home pricing (NAR inventory also would not include shadow inventory not for sale). We think home builders will need to adjust pricing lower to remain competitive with the more attractively priced existing home market.”