Home Sales Down: Is The End Near?

Feb. 28, 2005 — -- The previously booming housing market took another hit today with a report that existing-home sales fell in January, just a day after another report showed a slowdown in new-home sales.

Sales of pre-owned homes took a dip in January as inventories expanded, according to numbers released by the National Association of Realtors this morning.

The association says that sales during the first month of 2006 fell by 2.8 percent from December's numbers to a seasonally adjusted annual rate of 6.56 million units. This is below analyst expectations of a 6.70 million unit pace. The report also contains a measure of the inventory of homes for sale, which at 5.3 months of supply is at its highest point since August 1998.

The median price for sales during January was $211,000 -- exactly where it was in December.

What Does This Mean?

Those who are on street corners donning "THE END IS NEAR (for the housing bubble)" sandwich boards are probably a bit too aggressive in their assessment of the market, but this is another clear sign that the market is cooling.

Monday's new-home sales data are aligned with today's numbers. Inventories are rising around the nation as the market is shifting power from sellers to buyers. At the same time, mortgage rates are increasing and are expected to creep up slowly throughout the year, making a home purchase more expensive.

Analysts say home values will not increase at the astronomical double-digit rates which they have in the last four years. Most markets will not see home values dropping; some of the most speculative markets will see prices fall.

The Realtors' message is moving away from boom-time excitement to the tempered language of slow-and-steady growth. Proof of that can be seen in Realtor president Thomas Stevens' prepared statement: "The longer you own, the bigger the gain."