By Martin H. Bosworth
ConsumerAffairs.com
May 25, 2007
You may get a case of vertigo if you follow the real estate market these days.
Sales of newly-made homes have taken a surprising jump, while sales of existing homes are slumping to levels not seen in years. And in both cases, prices are being slashed in an effort to get an excess inventory of unsold homes off the market.
The National Association of Realtors (NAR) reported that sales of existing homes fell by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units, the slowest sales pace since June of 2003. The median price of an existing home declined by 0.8 percent to $220,900, the ninth consecutive price decline in as many months.
Existing home sales declined in the North, South, and West, but the Midwest registered a 1.9 percent increase in home sale prices for the region.
NAR chief economist Lawrence Yun attributed the slowdown of existing home sales to the drying up of the subprime market sector and tighter lending standards for sellers and buyers.
"A wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help to stabilize the market going forward," Yun said.
The NAR announcement came on the heels of the Commerce Department releasing statistics showing a 16.2 percent increase in sales of new homes for April 2007, the highest monthly jump since April 1993 saw a 16.4 percent gain.
The spike was attributed to favorable weather conditions in the country, particularly the south, and heavy price-cutting moves by builders to reduce excess inventory of unsold homes.
The subprime market continues to drag down both the real estate sector and the overall economy, with lenders closing up shop left and right and holders of subprime loans going into default and foreclosure at increasing rates.
Top subprime lender New Century filed for bankruptcy and laid off the majority of its employees while firms bid for its various assets.
Foreclosure notices surged 47 percent from March 2006 to March 2007, according to RealtyTrac. The company reported high rates of foreclosure in states such as Nevada, Colorado, and California, all of which had foreclosure notices far above the national average and even local norms from the previous year.
Realtors Don't Keep It Real
And even the Realtors themselves had to temper their sunny market optimism this year. Lawrence Yun had predicted in April that home prices would decline by .07 percent, and that the market would not recover as quickly as earlier forecasts had estimated.
Yun's colleague, former NAR head economist David Lereah, had consistently predicted that the market would stay successful and who authored a 2005 book entitled "Are You Missing The Real Estate Boom?", stepped down on May 19 to join online real estate company Move Inc.
Lereah was often heavily criticized for claiming that the housing bubble did not exist and there was no danger in extending loans into the subprime market. But inIn an interview he conducted before stepping down, Lereah gave a much gloomier assessment of the market.
"We're in a real estate recession," Lereah said."We're all partly guilty. But the lenders and the speculators, they had the most in it. Making zero down payments with no documentation, that's just irresponsible. But the Realtor, the lender, the title attorney, they all got wrapped up in the frenetic pace of the boom."
