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Falling Price of Homes Leave Owners Vulnerable

Published 08/26/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

Despite a better than expected month for home sales in July the overall outlook for the housing market remains grim in the face of tightening credit standards, a glut of homes on the market and rapidly decreasing home values. The plunging price of homes is a serious threat to homeowners, even those in good standing on their mortgages. With homes selling for less than they were paid for many Americans are losing the much needed equity in their homes. For years homeowners have used equity in their properties to offset stagnating wages and reduced savings.

Sales of previously owned homes jumped 3.1 percent in July, a gain that sent sales to their highest levels since February. However, the increase simply masked further weakness in the housing market. Prices continue to plummet and inventory continues increase, according to a report released Monday by the National Association of Realtors.

Part of the problem is the fact that 33 to 40 percent of sales last month could be characterized as “depressed sales,” meaning the homes were sold for less than was paid for them. These “depressed sales” tend to bring prices down throughout the market and put added pressure on household wealth and consumer spending. As the foreclosure crisis continues, the number of homes selling at a loss is likely to increase. In fact, just one year ago, the number of distressed sales accounted for only 10 percent of all real estate transactions.

Home prices were down 7.1 percent in July from one year ago and the median price for a home fell from $215,100 to $212,400. Prior to the current housing slump it had been 11 years since year-to-year prices had fallen.

``Existing home sales have likely stabilized,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said in an interview with Bloomberg Television. ``In terms of demand, we're probably close to the bottom. In terms of prices, we don't think we'll see a bottom until the end of next year.''

Even with more consumers coming off the sidelines because of the drastically lower prices it doesn’t appear that sales will be enough to keep up with the pace of foreclosures. In July there were 4.67 million homes on the market. That figure represents an 11.2 month supply, whereas a stable market is marked by a five to six month supply.

"The troubling thing about this report is that the supply issue is not going away," Michael Larson, an analyst with Weiss Research said. "It would be okay as long as the inventory went down, but there were enough new listings that overall supply rose more than sales."

Source CNNMoney.com:

The housing sector offered more discouraging news Tuesday, as new home sales rose slightly in July according to a key government report.

July registered the increase in sales after June sales were revised downward.

July sales came in at a seasonally adjusted annual rate of 515,000, the Census Bureau report showed, up 2.4% from a revised 503,000 in the previous month. In last month's report, June's sales were reported to be at a rate of 530,000.

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