Monday, February 1, 2010

Believe It or Not, Existing-Home Sales Were Up in ’09

From the NY Times:

WHEN prices fall far enough, buyers will appear.

That seems to have been the story of the American housing market in 2009. The number of existing homes that changed hands in 2009 — 4.6 million — was up 5 percent from the previous year. It was the first annual increase since 2005.

But to accomplish that, prices had to be cut sharply. The median sales price was $173,200, compared with $196,600 in 2008.

Adjusted for inflation, that price was the lowest since 1997. As the accompanying chart shows, not since 2005 has the price of the median existing home risen in real dollars.

For those four years, the inflation-adjusted price has fallen 28 percent, something few homeowners thought possible before it happened. They were more used to the previous four years, when the median price outstripped inflation by a total of 27 percent.

The increase in sales was not only because of rising demand. Foreclosures forced many people out of homes, despite government efforts to get banks to restructure mortgages.

Sales of new homes continued to sink, even with help from a tax credit for new homebuyers. For the year, just 373,000 new single-family homes were sold, the lowest total since the government began keeping count in 1963.

That appears to have been caused, as much as anything, by the excess supply of such homes. It is taking a long time to work that off, and in some communities it may never be worked off, as foreclosures and partly built homes make some neighborhoods unattractive for all but the most desperate.

New-home sales have always been volatile, rising when the economy is strong and interest rates are low, and declining when one or both of those factors are absent. But those ups and downs tended to balance out.

Over every 10-year period from the 1960s to the late 1990s, annual sales of new homes averaged from about 540,000 homes to 650,000 homes. But after that, the figure began to climb steadily. The recession of 2001 hardly made a dent in sales, as the Federal Reserve slashed interest rates.

The 10-year average peaked in 2006 at 995,000 homes. Even after the disastrous performance in 2009, the 10-year figure is still over 900,000.

Prices of new homes have come down as well as those of existing homes, but not as rapidly. That, too, may have held sales back. Adjusted for inflation, the median price of a new home in 2009 was 18 percent below the 2005 figure, compared with the 28 percent drop for existing home prices.

The supply of completed but unsold new homes ended 2009 at 99,000. That is half the peak level reached in early 2008, but many of those homes no longer look new. On average, it has been more than 13 months since they were completed.

In the accompanying charts, there may be hope to be found from the early 1980s, when the plunge in sales was comparable to this one. When the economy finally picked up, home sales skyrocketed from pent-up demand.

Perhaps that will happen again. The big difference, however, is in prices. While inflation-adjusted prices declined during that downturn, high inflation meant that nominal prices did not. Unlike now, few homeowners owed more than their houses were worth. That is why some economists think a way must be found to reduce the amounts owed by some homeowners.

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