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Existing Home Sales Fall Again, including Triangle, North Carolina

Posted November 28, 2007

Sales of existing homes fell for the eighth consecutive month in October, with median home prices falling by a record amount. Analysts blamed the worsening housing slump on the credit crunch that hit in August.

The National Association of Realtors reported that sales of existing single-family homes and condominiums dropped by 1.2 percent last month to a seasonally adjusted annual rate of 4.97 million units.

In North Carolina, sales dropped 20 percent, to 9,100 units, from 11,368 units in October of 2006. Sales also were down 2 percent from September, when 9,283 units were sold, according to the North Carolina Association of Realtors.

However, the average selling price in October was $218,090, which was 2 percent higher than a year earlier.

In the Triangle, sales of new and existing homes dropped 14 percent from a year ago to 2,528.

The average selling price was 6 percent higher than a year earlier, climbing to $239,820.

The number of sales also increased from 2,347 in September, an 8 percent jump.

The nationaly median price of a home sold last month declined to $207,800, a drop of 5.1 percent from a year ago, the biggest year-over-year price decline on record.

Analysts blamed the October weakness on the fallout from a serious credit crunch that roiled financial markets in August. Banks and other lenders have tightened credit standards in response to a soaring level of defaults, especially on subprime mortgages, loans provided to borrowers with weak credit histories.

The worry is that the credit crisis and a deepening housing slump could be enough to push the country into a recession.

In another sign of spreading economic weakness, the Commerce Department reported Wednesday that orders to factories for big-ticket manufactured goods declined by 0.4 percent in October. It was the third straight drop, the longest stretch of weakness in nearly four years.

By region of the country, sales were unchanged in the Northeast and the South and down by 1.7 percent in the Midwest and 4.4 percent in the West.

Lawrence Yun, chief economist for the Realtors, said the big drop in the West reflected the fact that the market for so-called "jumbo mortgages," loans higher than $417,000, tightened considerably this summer. California, with its high home prices, depends heavily on the availability of jumbo loans.

"Temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated," Yun said. "We continue to see the biggest impact in high-cost markets that rely on jumbo loans."

Yun said he believed the drop in sales, which left activity in October 20.7 percent below the level of a year ago, was nearing its end. He said a greater willingness of lenders to start offering jumbo loans again and the use of Federal Housing Administration-insured loans in place of subprime mortgages will help generate a rebound.

However, other economists are predicting housing could remain depressed for many months to come as sellers face high inventories of unsold homes.

While economic growth roared ahead at a rate approaching 5 percent in the summer, many economists believe growth has slowed dramatically in the current quarter from the combined blows of the most severe housing slump in more than two decades, the credit crunch and rising energy prices.

The government will release its latest look at overall economic activity on Thursday and it is expected to show growth at an annual rate of around 4.9 percent in the July-September quarter. However, growth in the current October-December period is expected to slump to a barely discernible 1.5 percent or even less.

Many economists have raised the odds that the country could fall into an outright recession to as high as 40 percent although they believe the Federal Reserve, which has already cut interest rates twice since September, will keep reducing rates if economic activity continues to falter.

In remarks Wednesday, Federal Reserve Vice Chairman Donald Kohn said the Fed's monetary policies need to be nimble to address current risks.

"The increased (financial market) turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October," Kohn said in remarks to the Council on Foreign Relations.

One of the troubling aspects of the report on durable goods was that orders for capital goods excluding aircraft, a category considered a good proxy for business investment, fell by 2.3 percent in October, the biggest decline since a 2.4 percent fall in February.

It had been hoped that business investment would offset part of the slump in housing. However, the October decline, if it continues, could show businesses are paring back plans to buy new equipment in the face of widening economic problems.

Excluding the volatile transportation category, durable goods orders fell by 0.7 percent in October, the biggest drop since a 1.7 percent fall in August.

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  • Pack1966 Nov 28, 2007

    In the local (Wake County) area, has anyone considered that existing home sales are down b/c the market is flooded with new homes? Houses only a few years old sit for 60+ days, realtors urge sellers to reduce price to move house but many sellers are in home equity debt too high to reduce = and that equals bank foreclosures. The time Wake Co. catches up to national trend is coming very quickly. Bad news for residents, but the developers will simply take their money and move on to rape the next county of it's natural beauty, as well as economic security!