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Home Prices Drop Sharply; Unsold Homes Increase

Prices hit 20-year low; inventory grows to nine months

by Martin H. Bosworth
ConsumerAffairs.com

August 29, 2007

Standard & Poor's (S&P) quarterly index report of home prices found that U.S. homes averaged a 3.2 percent price decrease in the second quarter of 2007, the largest drop since S&P began tracking home price fluctuations in 1987.

S&P's Case-Schiller home price tracking index previously documented the first year-to-year decline of home prices in the U.S. since 1991. The May S&P report documented sharp declines in formerly red-hot housing markets such as Boston, Washington, D.C., and San Diego.

The current S&P report showed the price decline trend continuing, though Boston showed a slower rate of price cuts than the previous year, while areas such as Seattle and Charlotte, North Carolina registered small gains.

The city with the largest rate of price cuts was Detroit, registering an 11 percent drop from 2006. Formerly hot housing markets such as Tampa, Washington, D.C., and Seattle showed declines of 7 percent from the previous year.

The analyst firm said it was too early to tell if any of the price reports pointed to changes in the overall housing market, but the general price decline was expected to continue.

Five-Year Low

The S&P report came on the heels of new data from the National Association of Realtors (NAR) which found sales of existing homes dropped to an annual rate of 5.75 million, a decline of 9 percent since 2006 and the overall largest price decline since 2002.

Inventory of unsold single-family homes across the country increased to the equivalent of 9.2 months' worth of supply. Unsold condominiums, townhouses, and co-ops increased the overall inventory to 9.6 percent.

According to the NAR forecast, it would take nine months to sell off the entire glut of unsold homes at current prices, and then only if no new existing homes were added.

Overbuilding of new condo developments and McMansions during the peak years of the housing boom ended up contributing to the current slow market.

Too many unsold existing homes has depressed overall prices, and when combined with the meltdown in the subprime mortgage markets and the resultant credit crunch, the overall result is a housing market that's still many months away from hitting bottom.

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