WASHINGTON – Nationwide sales of existing homes fell more than expected last month, as economic fears made buyers leery even though prices plunged to the lowest level in more than four years. And the decline is expected to get worse because October's results reflect sales contracts signed before Wall Street's nosedive.
The National Association of Realtors said Monday that sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September. Sales had been expected to fall to a rate of 5.05 million, according to economists surveyed by Thomson Reuters.
Sales nationwide — without adjusting for seasonal factors — slipped less than 1 percent in October from a year ago. The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.
"If home prices overshoot downward, then it can lead to collateral damage to the economy," said Lawrence Yun, chief economist at the Realtors group. The cost, he added, would be "very reasonable" compared with the billions the government is spending to rescue major banks.
To help stabilize home prices, the Realtors group is calling on lawmakers and the administration of President-elect Barack Obama to spend $50 billion to subsidize lower mortgage rates, projecting that doing so would stimulate about 500,000 more home sales.
Since October's sales reflect contracts signed in August and September, sales could well fall further amid the fallout from the recent stock market plunge and sinking economy.
"Everybody's afraid of losing their job," she said. "People who are thinking about moving are holding off."
Global Insight economist Patrick Newport expects sales to fall next month, possibly to the lowest point of the U.S. housing market bust. More Americans are moving in with relatives after losing their homes to foreclosure, he said, as the economy sinks and lenders tighten their standards.
Lenders "are trying to protect themselves by holding cash," Newport said.
Still, other economists are encouraged that sales did not fall below June's sales rate of 4.85 million, the lowest point of the current housing bust.
Compared with last month, sales were down in much of the country. But in the West sales were up 40.5 percent compared with October last year, without adjusting for seasonal factors. Buyers in places like Las Vegas and Orange County, Calif., snapped up distressed properties at bargain prices.
Nationwide, the Realtors group estimates that sales of distressed properties made up 45 percent of all property sales in October.
There were 4.23 million unsold homes on the market in October, down slightly from a month earlier. At the current sales pace, it would take 10.2 months to sell all the properties.
Until the inventory of homes falls to more normal levels, analysts say, the housing slump is likely to persist. Inventories remain at historically high levels, driven by a massive wave of mortgage foreclosures.
"There are still way too many houses being offered and that is likely to stay that way for quite some time as we work through the foreclosure problem," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa.
Soaring foreclosures are a driving force behind the credit crisis that has upended Wall Street and caused the government to spend billions rescuing numerous major banking institutions, the latest of which is Citigroup Inc.
President Bush argued Monday that the government's dramatic rescue of Citigroup, announced late Sunday, was necessary to "safeguard the financial system" and help the economy recover, and he said there could be more such moves if other institutions need help.
Meanwhile, Obama pledged Monday to honor the commitments the outgoing Bush administration has made to rescue financial markets and urged the new, incoming Congress to pass a major stimulus package immediately to restore growth and create jobs.
He declined to say how big a spending package he wants to revive the economy, but he said, "It's going to be costly."