Surviving (or Thriving) in the Housing Slump

May 25, 2007 — -- For most people, a home is the biggest investment they will ever make, so a month like April, when the real estate market shows a bigger than 10 percent decline in sales activity, is bound to put some in a dour mood.

The flaccid market has a lot of homeowners wondering what to do if they want to sell and buyers hoping they can time the bottom of the market for maximum returns on their real estate plays.

Thursday, there was a feeling of jubilation on Wall Street, thanks to a better-than-expected report on sales of new homes.

The Commerce Department said sales of newly built houses were up 16.2 percent during April over the previous month. It was news most housing analysts hadn't been expecting and buoyed the stock markets, as many people took the report as a sign that the housing bust might be coming to an end.

Builders cut prices on new homes for sale -- shaving about $30,000 off the median home -- in the hopes of cutting back on what had become an historically big inventory of unsold homes.

But the jump was so big it had skeptics thinking there had to be something wrong with the number.

"We've seen this before," said economist Joel Naroff. "A number has a huge gain like this, and it's wiped out very soon afterward."

The margin of error on the new homes report is plus or minus 13 percent.

The true picture of the market would not be clear until Friday, when the National Association of Realtors issued its monthly look at existing home sales. Sales of pre-owned homes make up some 84 percent of all sales in the country each month.

That report showed a 2.6 percent drop in sales, confounding analyst expectations of a much smaller retraction in sales. The slowdown was seen in every region of the country.

When combined, the two reports show that sales of all homes dropped by about 20,000 units during April.

The recent trend to slower sales and lower prices is forcing many housing analysts to rethink the near-term prospects for real estate.