1st home-price decline since '93 possible: Realtors
Copyright © 2006, Chicago Tribune and Bloomberg News
Published September 8, 2006
WASHINGTON -- U.S. home prices could fall for the first time since 1993 as a record number of homes for sale gives buyers the upper hand in negotiations, according to the National Association of Realtors.
"We'll probably see prices [in August] dip temporarily below year-ago levels as the market works through a build-up in housing inventory," David Lereah, the group's chief economist, said in a report released Thursday. He didn't provide a monthly median estimate.
The inventory of new and existing homes for sale has swelled to record levels as the five-year housing boom comes to an end. Shares of home builders have fallen this week on weak earnings reports and lowered outlooks by Hovnanian Enterprises Inc., Beazer Homes USA Inc. and KB Home.
Short-term housing investors, so-called "flippers," are putting their properties up for sale, making for "an increasingly challenging housing market," KB Home Chief Executive Bruce Karatz said Wednesday in a statement that detailed the builder's 43 percent drop in new orders.
"People who purchased last year with the intent of flipping are likely to get burned," Lereah said in the Realtors group's report.
The last time the monthly median price for an existing home fell below the year-ago level was February 1993, when it dipped 1.1 percent. On Sept. 25, the group will report existing-home prices and sales for August. Two days later, the Commerce Department will report new-home prices and sales.
The Federal Reserve said last month that "cooling" in the housing sector is weakening the economy, and ended a series of 17 consecutive increases in its target interest rate.
Home sales and ancillary purchases such as new furnishings and renovations account for as much as 23 percent of gross domestic product, according to the Joint Center for Housing Studies at Harvard University.
Lereah said the median price of new homes probably will rise 0.2 percent on an annualized basis in 2006, the worst performance since prices fell in 1991, when the market was mired in a housing depression. The median price for an existing home probably will gain 2.8 percent, the slowest rate since 1992.
Sales of existing houses and condominiums declined to an annual rate of 6.69 million in the second quarter from a 7.19 million pace a year earlier, according to data compiled by the Realtors group.
The median price for a condominium dropped 0.3 percent from a year ago, to $225,800, the first decline on record. The median price for a single-family home rose 3.7 percent, to $227,500, the slowest pace in six years.
The inventory of unsold existing homes climbed to 3.86 million in July, the highest ever, according to the Realtors group. The number of new homes for sale reached a record 568,000, according to Census Department data.