Existing home sales probably will fall 11 percent this year to a five-year low, worse than previously forecast, and new-home sales will tumble to the lowest in a decade, the National Association of Realtors said last Wednesday.
New-home sales may decline 24 percent to 804,000, the trade group said in a news release. A month ago the Chicago-based association called for an 8.6 percent decline in sales of previously owned homes, which account for about 85 percent of the housing market.
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The forecasts signal the housing decline is deepening and the market isn’t recovering. Mortgage lenders such as Countrywide Financial Corp., the largest, and Wells Fargo & Co., the second-biggest, have raised standards in reaction to a surge of foreclosures, Donald Kohn, Federal Reserve vice chairman, said in an Oct. 5 speech in Philadelphia.
Existing home sales may drop to 5.78 million in 2007 from 6.48 million last year and prices for both new and existing homes are also forecast to fall, the organization said.
The median existing home price will drop 1.3 percent to $219,000 in 2007 and the median new home price may decline 2.1 percent to $241,400.
Should new home sales drop to the level forecast by the Realtors that would mark a fall of 37 percent from 2005’s record 1.28 million sales.
Fed policy makers at their Sept. 18 meeting described the U.S. housing market as “exceptionally weak,” according to minutes released Tuesday.
The Fed cut the interest rate it charges banks by half a percentage point to 4.75 percent at that meeting. The first reduction in four years was double the amount most economists forecast, according to a Bloomberg survey.
The rate cut likely won’t give a boost to the housing market until next year, according to Kohn.
“Housing markets are likely to remain depressed in coming months as housing demand is restrained by the difficulty in obtaining mortgages and perhaps also by spreading expectations on the part of buyers that house prices will fall, as they already have in a number of markets,” Kohn said.
With prices in the existing home market falling, U.S. homebuilders have slashed prices and abandoned land purchases.
Lennar Corp., the largest U.S. homebuilder, reported the biggest quarterly loss in its 53-year history last month after $848 million of costs to write down the value of real estate. KB Home, the Los Angeles-based builder that has lost more than 40 percent of its value this year, reported a third quarter loss.
KB Home CEO Jeffrey Mezger said on Sept. 27 that he sees no sign that the housing market is stabilizing and that an oversupply of existing homes is cutting demand for new properties.
A Standard & Poor’s index of the 16 biggest homebuilders had dropped 42 percent this year through Tuesday, led by Standard Pacific Corp., Meritage Homes Corp. and Hovnanian Enterprises Inc. •
