Economist's Commentary: February 25, 2008

Soft, But Stabilizing Home Sales

By Lawrence Yun, Chief Economist

Today's data on existing home sales continues to show soft figures. In January, there were 4.89 million existing home sales on a seasonally adjusted annual basis, which is down very slightly by 0.4 percent from the prior month and by 23 percent from one year ago. It marks, essentially, the lowest level of activity in 10 years.

However, sales have held steady at near 5 million (plus or minus 100,000) since September of last year. In other words, the past months' home sales activity accounts for the virtual disappearance of the subprime and other risky loan products, and the continuing wide credit spread on jumbo loans. Unless there is a blowup in the lending on prime loans (unimaginable), there is not likely to be a further notable sales decline from this point. In fact, any greater use of the safer FHA or jumbo loans can help revive home sales later in the year.

Though sales rose in some areas like Lansing, St. Louis, and Passaic County in New Jersey, the vast part of the country experienced lower home sales. Home prices, meanwhile, were divided roughly in half between rising and falling markets. But due to falling prices in more populous regions, the national median existing home price in January declined 4.6 percent from one year ago to $201,100. The reason for the continuing price decline is the high inventory of homes on the market. At the end of January, there were 4.2 million existing homes for sale, which is an increase of 200,000 from December. The inventory represents a 10.3 months' supply at the current sales pace. It had been under 5 months during the housing market boom and was near 7 months when home prices at the national level stopped rising.

With home prices falling in many areas — and interest rates at near historic lows, affordability conditions have significantly improved in many parts of the country. Time will tell if these inducements are enough to bring buyers to the market.

For data junkies, here are additional bits of data to chew on:

Single family home sales rose 0.5% in January to 4.34 million unit sales from 4.42 million in December. The median existing single-family home price was $198,700, a 5.1% price decline from a year earlier.

Condo sales declined 6.5% in January to 550,000 from 588,000 in December. The median existing condo prices in January was $220,400, down 1.0% from a year earlier.

Regionally, Midwest home sales rose, but other regions recorded declines.

Also regionally, home prices in the Northeast region showed a price increase of 3.1%. Other three regions posted price declines with the West region — dominated by California where jumbo loan problems continue —  experiencing nearly 7% price drop.

In summary, existing home sales were essentially unchanged in January. The national median price declined due to high inventory conditions and from lower sales activity in the higher-priced regions. At the same time, from the consumers' point of view, lower prices and historically low interest rates have improved affordability.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®.