Biggest drop ever in home prices

November 28, 2006
Existing home sales rise for the first time in eight months, in part because of falling prices. Durable goods orders show a big drop. Stocks move up modestly. An upgrade boosts Apple, but Palm and Nokia tumble on profit warnings.


Sales of existing homes increased slightly in October as home prices had their biggest year-over-year decline ever, the National Association of Realtors reported today.

Some housing experts said the report signals that the U.S. housing market may be reaching a bottom, but a full recovery isn’t imminent.

Stocks, meanwhile, moved modestly higher on the day. The Dow Jones industrials pushed ahead nearly 15 points to 12,136. The Standard & Poor’s 500 Index added 4.8 points to nearly 1,387, and the Nasdaq Composite Index was up 6.7 points to 2,413.

Home sales ran at a seasonally adjusted rate of 6.24 million units, up 0.5% from September and better than economists’ estimates of a 6.15-million-unit rate.

The median price of a home was $221,000, unchanged from September but down 3.5% from October 2005. The price decline was the biggest year-over-year change ever, breaking the old record of a 2.1% decline in November 1990, when pressures were building for a war with Iraq over Kuwait. And it was probably due to sellers' agreeing to take less to sell a home, said David Lereah, the chief economist of the trade organization.

Single-family home sales rose 1.3% in October to a seasonally-adjusted rate of 5.5 million from September while condominium sales fell 4.8% to 741,000 rate. For the year, single-family detached home sales are down 11%; condo sales are down 14.5%.

The modest rise in October home resales "is helping build some excitement that we might be seeing a bottom ... a settling back down in the housing market, but not really a bubble bursting," said Marc Pado, chief U.S. market strategist at Cantor Fitzgerald in San Francisco.

But David Blitzer of Standard & Poor’s Corp. told CNBC’s "Street Signs" that the bottom won’t come until mid-2007.

While a bottom may be nearing, CNBC’s Bob Pisani said, traders on Wall Street were warning that a recovery to levels of a year ago isn’t likely because the supply of homes for sale is still growing. Home building stocks were modestly lower on the day.

At the end of the month, the Realtors report said, there were 3.85 million homes for sale, representing a 7.4-month supply. The total inventory is up 34% from a year ago, and the supply (which measures how many months it would take to reduce the inventory to zero) is up 51% from a year ago to the highest level since April 1993.