By Shobhana Chandra
Dec. 23 (Bloomberg) -- Sales of previously owned homes in the U.S. fell more than forecast in November and prices dropped by the most on record, indicating the real estate slump will extend into a fourth year and worsen the recession.
Purchases declined 8.6 percent to an annual rate of 4.49 million, from a 4.91 million rate in October that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 13.2 percent from a year earlier, the biggest decline since records started in 1968. Separately, the Commerce Department reported today that new-home sales fell 2.9 percent last month to a 17-year low.
Prices will plunge further as job losses sap demand, foreclosures add to the property glut and prospective buyers get turned away by mortgage lenders. The Federal Reserve this month cut its benchmark interest rate target to as low as zero and said it would take more steps to ease borrowing as the longest postwar recession looms.
“November sales just collapsed,” said Chris Low, chief economist at FTN Financial in New York. “Price declines are accelerating. As bad as this is, it’s going to be considerably worse in a month’s time.”
Resales were forecast to fall to a 4.93 million annual rate from an originally reported 4.98 million in October, according to the median estimate of 63 economists in a Bloomberg News survey. Projections ranged from 3.98 million to 5.2 million.
Sales dropped 10.6 percent compared with a year earlier. Resales averaged 5.67 million in 2007 and before today’s report, fluctuated around a 4.96 million rate this year.
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.
Historic Price Decline
The median price of an existing home fell to $181,300, and the percentage drop from a year ago was “probably the largest price decline since the Great Depression,” although records don’t go back that far, said NAR Chief Economist Lawrence Yun.
Foreclosures and short sales accounted for 45 percent of last month’s home purchases, Yun said.
Resales of single-family homes fell 8 percent to an annual rate of 4.02 million. Sales of condos and co-ops declined 13 percent to a 470,000 rate.
Purchases declined in all regions of the country, led by drops of 12 percent in the Northeast and 10.9 percent in the South. Sales fell 7.4 percent in the Midwest and 4.3 percent in the West. 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 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 Federal Reserve on Dec. 16 cut its benchmark interest rate target to a range of zero to 0.25 percent, and said 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.
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.
President-elect Barack Obama on Dec. 13 said he will develop plans to limit foreclosures and “dramatically increase the number of families who can stay in their homes.” One tenth of U.S. families who own a home are in financial distress, Obama said.
The S&P Supercomposite Homebuilding Index is down a third so far this year, reflecting the plight of homebuilders.
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