MONEY MATTERS: Realtors Predict First Drop in Home Prices in 40 Years

National Association of Realtors Predicts 0.7% decline in 2007 -- the First Annual Drop on Record.


For months, the news in the housing market has been, at best, mixed. The good news is that mortgage rates are still historically low. According to Bankrate.com, the 30-year fixed-rate mortgage is currently at 5.79%.

At its worst, the news has been downright dreary. The subprime mortgage meltdown has panicked the mortgage industry, as well as realtors, members of Congress, and those in ancillary industries that build or sell home furnishings, appliances, etc. All have watched nervously as the rates of delinquency and mortgage defaults have spiked in recent months.

Now that weakness appears to be spreading into the wider housing market. New home sales have declined to the slowest pace in six years.

D.R. Horton, the nation's No. 2 home builder, reported that the number of new homes sold in its fiscal second quarter fell nearly 37 percent. The value of those homes fell about 40 percent to $2.6 billion for the period that ended March 31. The company blames the poor showing on the glut of homes presently on the market.

The builder said the declines in sales volume and value were seen in all regions in which it operates -- the Northeast, throughout the South, in California, and the rest of the West. Each region saw declines of about 20 percent or more. But California had the worst declines; volume was down 59 percent, and value of the homes sold fell 56.8 percent.

But some of the most troubling news of all came out just yesterday.

The National Association of Realtors (NAR) announced that it expects home prices to fall this year for the first time since they began keeping track nearly 40 years ago. In eight of the last nine months, median home prices have declined, while just over a year ago double-digit gains were the norm.

The NAR's latest monthly forecast predicted a 0.7 percent decline in the median price of an existing home sold this year. Just a month ago it had been projecting a 1.2 percent increase. Half of all homes sell for more than the median and half for less.

And new, tighter financing standards caused the group to also cut its sales forecast by 100,000 to 6.34 million homes, a pace that would be about 2 percent below the 6.48 million existing homes sold in 2006.

Despite the negative news, the group tried to highlight the positive, forecasting existing-home sales to be the fourth highest on record in 2007. It also optimistically noted that housing remains a "great long-term investment."

The NAR predicts that the worst effects of the slowdown will be felt in the new home market. It forecasts that new home sales will be down 13 percent this year. The good news is that it predicts that new home sales will pick up slightly next year.

While the drop in prices or sales may be bad for many, it’s welcome news to others. The environment certainly creates a buyer’s market.

And since a home is a hard asset with a historical appreciation of 6.4 percent, according to the NAR, those who are happy with their home and their mortgage can just ride out this temporary fluctuation. History suggests that the current price drop is an anomaly that will eventually pass.

In the meantime, there will be some pain, perhaps lots of it, for millions of other Americans -– either directly or indirectly.

Sean M. Kennedy, Money Correspondent:

Money Matters, by Gather Correspondent Sean M. Kennedy, is published every Thursday to Gather Essentials: Money.

Money Matters is a practical look at money and how developments in the American economy may affect you.

Sean is a freelance writer based in Los Angeles.

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