US home sales hit fresh lows, unsold properties flood market

Brisbane Times
October 25, 2007

Sales of US homes and apartments tumbled a hefty 8.0 percent in September extending one of the nation’s worst housing slumps in decades, an industry group said Wednesday.

The National Association of Realtors (NAR) said in a monthly snapshot that sales of existing homes and apartments fell to a seasonally adjusted rate of 5.04 million units in September from 5.48 million in August.

The drop was worse than expected. Most economists had only expected sales to decline to around 5.25 million. August sales were revised lower from an original tally of 5.50 million homes.

Stripping out apartment turnover, sales dived to their lowest level since January 1998.

Analysts said the grim news boosts the odds that the Federal Reserve will cut interest rates for the second time in as many months at a policy meeting next Wednesday.

The depth of the housing depression was underlined by an annual reading which showed sales of homes and apartments across the United States have plummeted a dramatic 19.1 percent from September 2006.

The sales slowdown has pushed home prices lower in many cities in the past 12 months in a market downturn which has also forced many mortgage lenders out of business.

The national median existing-home price for all housing types fell 4.2 percent from a year ago to 211,700 US dollars.

The glut of unsold homes swamping the market rose 0.4 percent at the end of September to 4.40 million, marking a 10.5-month supply at the current sales pace.

Excluding apartments, the number of unsold homes flooding the market has spiked to its highest level since February 1988.

“Existing homes sales fell sharply in September,” said Stephen Gallagher, an economist at Societe Generale.

“Potential buyers, those without credit obstacles, had plenty of reason to wait and see hoping for greater supply or declining prices,” Gallagher said.

Economists are worried that the housing slowdown could put a brake on US economic growth.

“Until the federal government takes affirmative steps to rebuild the mortgage and bond markets with meaningful reforms, home prices will continue weak, and the economy will remain at risk,” said Peter Morici, an economist at the University of Maryland.

“Tipping from 1.5 percent growth into recession is easily done. It takes no more than a sneeze from the Middle East or some kind of currency crisis,” Morici said, referring to his forecast for fourth-quarter growth.

The Fed slashed borrowing costs last month and many economists expect the central bank to implement a fresh cut in its federal funds short term interest rate, presently pegged at 4.75 percent, next week.

US Treasury Secretary Henry Pauslon warned last week that the housing woes could see over one million homes repossessed this year as many Americans fail to meet their mortgage payments.

Tens of thousands of Americans with poor finances were sold “subprime” mortgages during the housing boom which ran out of steam in early 2006.

Such mortgages were often marketed with low “teaser” rates, many of which are due to reset to higher rates in the coming year. Economists fear already over-stretched borrowers are at risk of losing their homes because they will not be able to meet increased mortgage payments.

The depression is also taking a toll on corporate America.

Merrill Lynch, the giant Wall Street investment bank, disclosed Wednesday it had been forced to writeoff 7.9 billion US dollars in losses largely stemming from soured mortgage investments.

Other banks have also sustained big losses from mortgage-backed securities.

And America’s biggest mortgage lender, Countrywide Financial, said Tuesday it was offering new terms to tens of thousands of customers to stave off the risk of foreclosures, with loans totalling around 16 billion US dollars.

Home sales fell the most in the northeast of the country, dropping 10 percent in September, followed by lesser declines in the West, Midwest and South.