Home sales rise on biggest-ever price drop
Realtors' group sees record 8.2% decline in year-over-year prices in February.
By David Goldman, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- A record plunge in prices of existing homes produced only a modest increase in sales in February, according to the latest reading on the battered housing market by an industry trade group released Monday.
The National Association of Realtors reported that sales by homeowners rose 2.9% in February to a seasonally adjusted annual pace of 5.03 million, up from January's reading of 4.89 million. It was the first month-over-month rise in annualized pace since July.
"These are signs that housing's problems are being addressed, but I wouldn't break out the champagne yet," said Northern Trust chief economist Paul Kasriel. "We still have a ways to go."
Though February's pace beat economists' expectations, sales last month were still down 23.8% from a year earlier. Economists surveyed by Briefing.com expected the report to show existing home sales slowed to an annual pace of 4.86 million.
The median price of a home sold during the month fell 8.2% to $195,900 from $213,500 a year earlier - the largest year-over-year price drop on record. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier.
"That's a huge drop in prices, which is how you move the merchandise," said Kasriel.
Sale prices have now fallen 15% from their peak in July 2006, and 14% over their most recent slide since June 2007, bringing the median price of existing homes sold down to May 2004 levels.
The median price of a single-family home dropped significantly as well, falling 8.7% to $193,900. That was the largest drop in prices since the trade group began tracking them in 1989.
Though the drop in existing home prices helped bolster the average sales pace, the numbers were mostly boosted by a 11.3% rise in sales in the Northeast, which actually saw a 0.4% rise in median price. But even as the median home price fell 13.4% in the western part of the nation, home sales still dropped 1.1% in that region.
The report showed encouraging news regarding housing inventories, as the excess supply of homes on the market fell in January. Realtors estimated that there were 4 million homes available for sale, which represents a nearly 9.6-month supply. That was down from the 10.2-month supply in December.
"There is a huge oversupply on housing, so builders have been cutting back dramatically in production of new houses," said Kasriel. "That's exactly what has to happen to bring supply and demand back into the balance."
Solution is part of a larger problem. But the downturn in home building has hammered the results of the nation's largest builders and has taken its toll on the economy as well.
Employment in the construction sector fell by 30,000 jobs in February, according to the most recent ADP National Employment Report. The sector has shown a decline in every month since August 2006, and has lost a total of 236,000 jobs since then.
Furthermore, plummeting home prices affect homeowners' wealth, leading to lower consumer spending. Sinking home value could also send some mortgage borrowers into foreclosure.
"As house prices fall sharply, that can force more people into default, especially those who bought late in the cycle who owe more on their houses than their homes are worth," noted Kasriel.