Home resales fell again last month despite a 2.5 percent drop in the nation’s median home price — the largest ever recorded — prompting discouraged sellers to pull their houses off the market, the National Association of Realtors reported yesterday.
Sales of existing homes, town houses and condominiums fell 1.9 percent last month and are down 14.2 percent from the record 7.2 million annual sales pace set a year ago. Price drops accelerated last month to 5.1 percent in the Northeast, a region that includes Washington, and 4.3 percent in the West, but were milder at 1.6 percent in the South, where sales have been holding up better than the rest of the country.
The Realtor group was hopeful that the sharp downturn in the housing market is starting to bottom out, citing a recent uptick in pending home sales and a 2.4 percent drop in homes available for sale — a tightening of inventory that resulted from sellers withdrawing from the market.
“The worst is behind us as far as a market correction — this is likely the trough for sales,” said David Lereah, the association’s chief economist.
Housing has been helped a little by the Federal Reserve’s decision not to raise interest rates since August — which it reaffirmed yesterday, citing among other things the likelihood that the housing downturn will help to moderate economic growth and inflation in the months ahead.
Most economists said yesterday’s report revealed deep weakness in the housing market, however, and some warned that it could take years to wring out the excessive run-up in prices and sales that occurred between 2000 and 2005.
“There will still be plenty of bad housing news for some time to come,” said Alexander P. Paris, economist with Barrington Research. “The length and depth of major boom-bust sectors is generally underestimated,” he said, noting that the technology sector is still struggling to come back six years after the tech bubble burst in 2000.
While housing may experience a temporary rebound after the steep decline of the past year, Mr. Paris said, the fallout from the housing bust is just beginning. Inventories of existing homes dipped a little last month, but inventories of new homes have shot up by 50 percent in the past year and are forcing builders to aggressively cut prices and offer deep incentives to move houses, he said.
Speculators — who drove the market for condominiums in Washington and other areas — are dumping properties to limit their losses, driving down prices, he said.
“That price weakness will spill over to all new and existing homes,” he said.
Also, after the housing boom prompted about 25,000 new jobs a month in real estate, mortgage finance, construction and other housing-related areas, the industry started shedding jobs at the rate of about 10,000 a month in March, he said.
Housing jobs provided a cornucopia of high incomes, bonuses and commissions that boosted economic growth. And as that rich source of income dries up, it will start to slow growth in other sectors, Mr. Paris said.
Spending by homeowners already is down substantially as a result of fewer sales. Furniture and appliance sales have slackened and spending on home improvement and remodeling has slowed sharply.
The potentially large economic effects from losses, defaults and foreclosures in housing will unfold slowly, and have just begun to show, Mr. Paris said. Foreclosures are up 53 percent from a year ago, with about half of them the result of homeowners being unable to afford payments after their adjustable rate mortgages rose to reflect previous Fed interest rate increases of 4.25 percentage points.
That is the leading edge of a large potential problem, Mr. Paris said. Around $2 trillion of adjustable rate mortgages taken out to buy and refinance houses in 2004 and 2005 will be adjusting upward in the next two years to three years.
“That is around 20 percent of all mortgages outstanding, with many of them high-risk loans with low introductory rates as low as 1 percent to 2 percent, back-end loads and other techniques to squeeze high- credit-risk buyers into higher priced homes than they could afford.
“Corrections of big credit-induced bubbles usually don’t end until we see pictures of more than a few handcuffed industry executives on TV,” he said.
Despite warnings from federal and state regulators and the news media, home buyers continue to flock to the riskiest mortgages — those that postpone some or all principal and interest payments and then adjust sharply upward in a few years when postponed sums are added back into monthly mortgage payments, according to the Mortgage Bankers Association.
The Federal Deposit Insurance Corp. has found such loans usually contain multiple-risk components that make them likelier to end in default. Over 60 percent of them last year had prepayment penalties, for example, making it difficult for borrowers to refinance, and nearly two-thirds required little or no down payment and no or low documentation of the borrower’s income.
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