U.S. Economy: Housing Prices Collapse at Near-Depression Pace
By Bob Willis and Shobhana Chandra
Dec. 23 (Bloomberg) -- Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing speculation the market was close to a bottom.
Purchases of both new and existing houses dropped 7.6 percent, the biggest decline since January 1989, to an annual rate of 4.43 million, government and industry figures showed today. A 13 percent drop in the median resale price was the most since records began in 1968 and was likely the largest since the 1930s, the National Association of Realtors said.
“Housing is still in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
The figures were worse than economists had forecast and signal that the battered housing market that led the economy into a recession may be taking another lurch down. Sliding property values mean more Americans will be under water on their mortgages, destroying household wealth and undermining consumers’ purchasing power.
President-elect Barack Obama plans an unprecedented economic stimulus to restore growth, and pledged on Dec. 13 to limit foreclosures. One tenth of U.S. families who own a home are in financial distress, Obama said.
“We need desperately to get this economy moving,” Vice President-elect Joseph Biden, who is leading the incoming administration’s initiative to bolster the middle class, told reporters before a meeting with Obama’s economic advisers today. Transition officials are “getting very close” to an agreement with lawmakers on the size of the stimulus, Biden said.
The Realtors’ figures showed home resales, including condos, fell 8.6 percent to an annual rate of 4.49 million, below all but one estimate in a Bloomberg News survey of 63 economists. The median resale price dropped to $181,300.
Separately, the Commerce Department reported that new- home sales fell 2.9 percent last month to a 17-year low of 407,000. The median sales price declined 11.5 percent from a year earlier to $220,400.
The Standard & Poor’s Supercomposite Homebuilding Index of stocks fell 2.2 percent to 204.97 as of 12:53 p.m. in New York, the fourth straight day of declines. The index is down a third so far this year. The S&P 500 Stock Index, which fell as much as 22 percent in November, was down 0.5 percent today.
Buyers Scared Off
Last month’s stock market collapse combined with rising unemployment to scare off home buyers, Lawrence Yun, the Realtors’ chief economist, said at a press conference.
“The economy was really starting to feel the smack-in-the- face blow from the financial crisis” during November, said David Resler, chief economist at Nomura Securities International Inc. in New York.
U.S. household wealth already fell in the third quarter by the most on record, Federal Reserve figures showed earlier this month. Net worth for households and non-profit groups decreased by $2.81 trillion, the most since the Fed’s data began in 1952.
The number of previously-owned unsold homes on the market at the end of November represented 11.2 months’ worth at the current sales pace, up from 10.3 months’ at the end of the prior month.
Foreclosures and short sales accounted for 45 percent of last month’s home purchases, Yun said.
Purchases declined in all regions of the country, led by drops of 12 percent in the Northeast and 10.9 percent in the South. Prices also fell throughout the country, led by a decline of 25.5 percent in the West.
Resales account for about 90 percent of the housing market. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier. New-home sales, recorded when a contract is signed, are considered by economists to be a more timely barometer.
The housing report showed builders succeeded in trimming inventories even faster than new-home sales dropped. The number of new homes for sale fell a record 7 percent to a seasonally adjusted 374,000, the fewest since February 2004.
The supply of new homes at the current sales rate dropped to 11.5 months’ worth from 11.8 months the prior month.
Resler said today’s figures show the housing market has “not yet seen any of the impact from the drop in mortgage rates.”
The Fed on Dec. 16 cut its benchmark interest rate target to a range of zero to 0.25 percent and reiterated it stands ready to expand purchases of Fannie Mae, Freddie Mac and Federal Home Loan Bank debt under a program aimed at reducing mortgage costs. That program has helped drive mortgage rates lower.
The average rate on a 30-year fixed-rate loan fell to 5.18 percent in the week ended Dec. 12, the lowest in more than five years, according to the Mortgage Bankers Association.
Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey’s biggest homebuilder, called on the government to provide an economic stimulus for the housing industry.
“If government wants to get to the root of the problem they need to fix housing first,” Hovnanian said in a conference call on Dec. 17. Hovnanian, whose company reported a fiscal fourth quarter loss, didn’t specify what type of government intervention he wants in the housing market.
To contact the reporters on this story:
Bob Willis in Washington firstname.lastname@example.org
Shobhana Chandra in Washington at email@example.com