WASHINGTON – With nationwide sales of existing homes falling more than expected last month and the median sales price plunging to $183,000, the U.S. housing market keeps getting worse. Bracing for more bad news likely on the way, industry groups pressed President-elect Barack Obama to help stem the damage.
Meanwhile, the major Wall Street indexes surged Monday on the government's plan to bail out Citigroup Inc., a move investors hope will help quiet some of the uncertainty hounding the financial sector and the overall economy. The Treasury Department says it will invest another $20 billion in Citigroup, and the government agreed to guarantee large losses the company might absorb on real estate-related assets.
The Dow Jones industrials soared nearly 400 points, and the 891-point rise since Friday gave the Dow its biggest two-day percentage gain since October 1987. The major indexes all jumped more than 4.5 percent Monday.
Obama unveiled the top members of his economic team, beginning with New York Federal Reserve President Timothy Geithner as Treasury secretary and Lawrence Summers as director of his National Economic Council. Summers led the Treasury Department under former President Bill Clinton.
Obama urged the new Congress to pass an economic stimulus bill, pledged help for the troubled auto industry and blessed the Bush administration's bailout of the financial industry. Even so, he conceded, "The economy is likely to get worse before it gets better."
From real estate agents to carpet makers, businesses dependent on a healthy housing sector are calling on lawmakers and the incoming administration to subsidize lower mortgage rates and beef up tax credits in a desperate effort to stimulate housing demand.
Spending $50 billion to lower mortgage rates would yield about 500,000 more home sales, projects the National Association of Realtors.
"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 would be "very reasonable" compared with the billions the government is spending to rescue major banks such as Citigroup, he added.
With similar goals, the National Association of Home Builders is leading a new "Fix Housing First" coalition to push for aid to the ailing housing sector. With more than 75 companies and industry groups, it represents everyone from building giants like Lennar Corp. and D.R. Horton Inc., to makers of home appliances and plastic pipe fittings.
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, the Realtors group said.
Sales had been expected to fall to a rate of 5.05 million, according to economists surveyed by Thomson Reuters.
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.
Since October's sales reflect contracts signed in August and September, sales could fall further this month amid the fallout from the recent stock market plunge and sinking economy.
Frank Ortiz first listed his 2,600-square foot, fully remodeled house in suburban Miami in September 2007 for about $450,000, then took it off the market seven months later because of a lack of buyer interest. It's back on the market now for $389,000.
"I haven't even gotten a call with interest in the house," said Ortiz, a 42-year-old information technology consultant who has held several open houses.
A national survey of more than 1,700 real estate agents who represented home buyers in September and October found 24 percent of their transactions were canceled — either because buyers were unable to get financing or couldn't sell their current homes, according to research firm Campbell Communications.
Evelyn Krazer, sales manager with Johnson Realty in St. Louis, said sales activity has slowed down to "practically nothing" in recent weeks. "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 sink again when the Realtors group reports results for November as the economy sinks and lenders tighten their standards. Still, other economists are encouraged that sales did not fall below June's 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 soared in the West as buyers snapped up distressed properties at bargain prices. 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. With defaults continuing to soar, efforts to halt foreclosures continue.
James Lockhart, director of the Federal Housing Finance Agency, sent a letter Monday to more than 40 companies that collect mortgage payments for investors, urging them to use a loan modification approach adopted earlier this month by mortgage finance companies Fannie Mae and Freddie Mac, which his agency regulates.
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.
President George W. Bush argued Monday that the government's dramatic rescue of Citigroup was necessary to protect the financial system and help the economy recover. There could be more such moves if other institutions need help, he said.