Home Resales Fall; Mortgage Availability Improves

Existing home sales fell for the eighth straight month in October, driving home supplies to 22-year highs, the National Association of Realtors reported Wednesday. Sales fell 1.2% to 4.97 million, the slowest pace in eight years. Unsold home inventory was up 1.9% to 4.45 million, a 10.8 month supply, also the highest level since 1999, and the highest since 1985 for single-family homes. The median home price was $207,800, down from $218,900 in October 2006 and $210,400 last month.

NAR chief economist Lawrence Yun explained the sluggish performance: "As noted last month, temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated," he said. On a brighter note, Yun noted mortgages were becoming more consumer-friendly: "Mortgage availability has improved as evidenced by much lower mortgage interest rates and a sharp jump in FHA endorsements for home purchases. A trend away from subprime mortgages to FHA loans, which often carry much lower interest rates, is a positive development for consumers and the housing market going forward. Still, it will take some time for the change to yield a measurably higher closed sales volume in the aftermath of the subprime collapse. In the near term, we expect home sales to remain fairly stable."

Other economists were more circumspect. "Until credit conditions return to something approximating normality and prices fall further, the existing home sector will not see supply and demand move back towards equilibrium levels," IDEAglobal's Joseph Brusuelas said. "There seems to be no silver lining in the darkening cloud overhanging the housing market. The risks that the weakness in this sector will pull the overall economy into recession are rising by the hour," David Resler of Nomura Securities remarked.

Economists are concerned consumers will cut back in the face of deflated property values, compounding a slowdown in economic growth. "Inventories are helping put tremendous downward pressure on prices," said FTN Financial economist Christopher Low. "I expect we're going to see a pretty significant slowdown in consumer spending in the first half of next year."

Sources: Press release, MarketWatch, Wall Street Journal, II Bloomberg

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