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Aug 24, 2010 11:16 AM by Melissa Canone

The Plunge in Home Sales

WASHINGTON (AP) - Sales of previously occupied homes plunged
last month to the lowest level in 15 years, despite the lowest
mortgage rates in decades and bargain prices in many areas.
July's sales fell by more than 27 percent to a seasonally
adjusted annual rate of 3.83 million, the National Association of
Realtors said Tuesday. It was the largest monthly drop on records
dating back to 1968, and sharp declines were recorded in all
regions of the country.
The plunge in home sales also magnified fears about the broader
economy.
"The housing market is undermining the already faltering wider
economic recovery," said Paul Dales, U.S. economist with Capital
Economics. "With the increasingly inevitable double-dip in prices
yet to come, things could yet get a lot worse."
Sales were particularly weak among homes in the lower- to
mid-priced ranges. For example, in the Midwest, homes priced
b mween $100,000 and $250,000 tumbled nearly 47 percent.
As sales have slowed, the inventory of unsold homes on the
market grew to nearly 4 million in July. That's a 12.5 month supply
at the current sales pace, the highest level in more than a decade.
It compares with a healthy level of about six months.
One reason the market is hurting is that buyers and sellers are
in a standoff over prices. Many sellers are reluctant to lower
their prices. And buyers are hesitating because they think home
prices haven't bottomed out.
"It really is a self-fulfilling prophecy," said Aaron Zapata,
a real estate agent in Brea, Calif. "If all buyers perceive that
home prices are coming down, then they will stop making offers -
and home prices will come down."
The housing market is also being hampered by the weakening
economic recovery. Unemployment remains stuck at 9.5 percent and
many potential buyers worry they might not have a job to pay the
mortgage.
Prices have fallen in part because foreclosures are running
about 10 times higher than before the housing bust. Though the
average rate for a 30-year fixed mortgage has sunk to 4.42 percent,
many people can't qualify because banks have tightened their
lending standards.
Home sales picked up in the spring when the government was
offering tax credits. But the tax credits expired on April 30 and
the market has been hobbled since.
The drop in July's sales was led by 35 percent plunge in the
Midwest. Sales were down 30 percent in the Northeast, 25 percent in
the West and 23 percent in the South.
The median sale price was $182,600, up 0.7 percent from a year
ago, but down 0.2 percent from June.

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