Housing likely to continue to flail

The end of the real estate recession seems nowhere in sight, in light of a slew of bleak news Tuesday of falling sales and prices, a severe decline in construction and deep losses and layoffs at one of the nation's largest builders.

Sales of existing homes fell last month to their lowest point in five years, the National Association of Realtors says. The NAR says it expects more dismal figures for September as the housing market reels from the crisis in the mortgage industry.

But the September figures might be much worse. Re/Max International, which analyzed existing-home sales in five major cities for USA TODAY, says September totals so far are down sharply from last year. In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.

"I've given up forecasting how low housing sales will go," says Joel Naroff, president of Naroff Economic Advisors.

And Stuart Miller, CEO of Lennar, len has given up forecasting the builder's profits after reporting a record loss of $514 million in its third fiscal quarter, as it laid off 35% of its employees and wrote down the value of real estate.

Lennar warned that more pink slips are on the way. The company began construction on 60% fewer homes in the June-through-August period compared with the same fiscal quarter last year. At the same time, nearly one-third of buyers canceled their contracts.

"August seemed to be a melting pot of all things negative," Miller says. The declines were felt in every region of the country, he says.

In a speech Tuesday, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said there's growing evidence that "the recovery in residential construction is likely to be delayed until later in 2008 than many forecasters originally thought."

The NAR says sales of existing homes fell about 4% from July to August, to a seasonally adjusted pace of 5.5 million, down 13% from August last year. At that rate, to sell the record number of homes for sale would take 10 months — the longest backlog since the NAR began tracking it in 1999.

The NAR says the median price — where half the homes cost more, half cost less — was all but flat at $224,500 in August. But a more widely followed gauge — the S&P/Case-Shiller index — showed prices in 20 large metro areas were off nearly 4% in July compared with July last year. It's the steepest drop since the index began falling in February.

Lawrence Yun, an NAR senior economist, says he can't predict when the housing market will hit bottom. Still, he says, the market should get a boost from the interest rate cuts last week by the Federal Reserve and from legislation in Congress to reform the Federal Housing Administration. The FHA provides mortgage insurance for low-income and first-time buyers.

With sales falling for two years now, Yun says, "It's my firm view there is significant pent-up demand."