-- Existing home sales tumbled in October and prices continued a precipitous decline not seen since 1968, indicating there is scant sign of a turnaround in the housing market despite aggressive federal intervention.
A report Monday by the National Association of Realtors found that home sales dropped 3.1%, from a seasonally adjusted rate of 5.14 million in September to 4.98 million in October — a much larger decline than many economists had predicted.
Home prices had their largest year-over-year drop on record. The median price for an existing home in October fell 11.3% from a year ago, to $183,300 — the lowest median sale price since March 2004. Economists expect the grim report to be followed by further declines in sales and prices.
Several factors imperil a turnaround this year and possibly next:
•Climbing unemployment is putting home purchases out of reach of more Americans. A sign of the trend: Mortgage applications dropped 15% in October and are on track to fall a similar percentage in November, according to Mortgage Bankers Association data. "The credit crunch will result in declining sales through the end of the year," says economist Patrick Newport of IHS Global Insight.
•Rising foreclosures mean more housing inventory, which puts downward pressure on prices. There were 4.23 million unsold homes on the market in October. Roughly 165,000 Americans lost their homes in September and October, bringing the total to 936,000 since August 2007.
More mortgage defaults are likely. At least $500 billion worth of option-adjustable-rate-mortgage loans are expected to reset from mid-2009 through 2012, further raising the risk of foreclosures.
The number of homeowners who owe more than their homes are worth has nearly doubled from the 6.6 million who were underwater at the end of 2007, according to Moody's Economy.com. Most are homeowners who bought between late 2003 and 2007.
Home prices are projected to drop on average another 10%, bringing to an estimated 14.6 million the number of homeowners who will be underwater on their mortgages by fall 2009.
According to the NAR report, home prices fell across most of the USA. Home sales were down in the Northeast (-5.5%), the South (-4.3%) and the Midwest (-14.4%), but up in the West (+6.1%).
The latest data show that President-elect Barack Obama and Treasury secretary nominee Timothy Geithner face a formidable task once they take office in determining how best to use some of the remaining $700 billion financial-rescue fund to help homeowners with troubled mortgages.
Joel Naroff of Naroff Economic Advisors says that Treasury should "actually start buying the mortgage paper from the banks, which was the original intention of the $700 billion bailout plan. Once the government owns the mortgages, they can then restructure them, allow a moratorium or do whatever they want."