A Record Drop In Home Prices

Washington Post, October 26, 2006
By Kirstin Downey

The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades the number has been tracked, according to an industry report released yesterday.

Nationwide, the number of existing single-family homes sold fell 14.2 percent in September compared with September 2005, according to the report from the National Association of Realtors. The number of sales has fallen each month since March.

Prices fell everywhere in the country, with the Northeast and West most affected. Declines were more moderate in the South, which includes the Washington area.

The median price nationally of an existing single-family home in September was $220,000, down from $225,000 a year earlier. It was the largest monthly decline since the Realtors began monitoring prices monthly in 1968. It was the second month in a row that home prices fell compared with a year earlier. The median is the point at which half of the homes cost more and half cost less.

One reason prices are dropping is that sellers are having a harder time finding buyers.

Nazirahk Amen, 39, a natural medicine practitioner and acupuncturist, thought a buyer would snap up his three-bedroom, three-bath Cape Cod in Takoma Park. He was so confident that his organic garden and greenhouse would be a particularly strong lure in that community that he bought another house nearby and moved. For the past two months, he has been making two mortgage payments, and recently reduced the price $25,000 to attract a bidder.

"Of course it's frustrating," Amen said. "I'm looking for this to end. It's frustrating, to say the least."

Realtors' association officials blame the continuing slump on what Lawrence Yun, the group's senior economist, called "confidence issues." Yun said buyers are waiting until they think the market has hit bottom, particularly because high prices have made houses less affordable.

"Psychological factors have people on the sidelines," Yun said. "They are waiting to time the market."

Yun saw reason for optimism, and thinks an upturn is at hand. He said the September figures represent a "trough in the market," because for the past two months, the inventory of unsold homes has fallen slightly.

"Supply was artificially elevated" earlier in the year when real estate investors bailed out of the market, Yun said.

Thomas M. Stevens, a Vienna-based real estate broker who serves as president of the national trade group, said in a statement that he was heartened by the decline in properties coming onto the market, which he said would lead to a better "supply balance."

Charles W. McMillion, an economist and president of District-based MBG Information Services, said he saw little sign that the decline was ending. "I don't see stability when sales continue to decline sharply and price continued to decline sharply," McMillion said. "It's pretty hard to argue we've reached a sustainable level."

Peter Morici, an economist at the University of Maryland, said reduced inventory of unsold houses may mean "frustrated buyers are removing their homes from the market." Morici said that major price adjustments will be needed to bring the market back into balance.

"The speculative frenzy of recent years is causing a major adjustment, and the happy talk of Realtors is prolonging the process," Morici said. "The absence of realistic analysis about the extent of overvaluation is characteristic in an industry that sees nothing but an upward progression for values, but houses like any other asset can be overpriced. . . . Things are likely to get worse before they get better."

According to yesterday's report, prices in the Northeast in September dropped 5.1 percent compared with a year earlier and those in the West dropped 4.3 percent. In the South, they were down 1.6 percent.

The federal government is scheduled to release figures today on sales of new homes, which have also been falling this year. That weakness has been reflected in the earnings reports of national home builders. This week, for instance, Dallas-based builder Centex Corp., which has 40 projects in the Washington area, reported that its earnings in the quarter ended Sept. 30 fell 59 percent. "We have been aggressively responding to deteriorating market conditions" by reducing land purchases and cutting staff, Timothy R. Eller, Centex's chairman and chief executive, said in a statement.