Existing Home Sales Drop At Fastest Rate In 18 Years

The two most closely watched monthly housing reports came out this week and served only to muddy the real estate waters even further.

On Tuesday the National Association of Realtors issued its report on existing home sales for the month of March. It wasn't pretty. Total existing-home sales, including single-family, townhouses, condos and co-ops fell 8.4 percent from a seasonally adjusted rate of 6.68 million in February to 6.12 million units in March. This is the sharpest decline since January 1989 and brought sales numbers to the lowest level since mid-2004. The sales pace was 11.3 percent below the 6.90 million sales recorded in March of last year.

NAR spokesman, Chief Economist David Lereah placed most of the blame on the weather, saying that he had expected the hit on March sales because of the unusually bad winter weather in February which kept people off the house-hunting trail. However, "looking at overall activity in the first quarter, we see that existing home sales averaged 6.41 million - a figure that is moderately higher than the sales pace during the second half of 2006. We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers."

Lereah said it was too early to measure the impact of tighter lending standards which he expects to moderately dampen housing activity, but "we're still looking for existing-home sales to gradually improve during the last half of 2007."

There is currently an inventory of 3,745,000 existing homes for sale. At the current sales rate this is sufficient to supply the market for 7.3 months. This is an increase of 7.4 percent over the 6.8 months inventory in revised February 2007 figures and a 30.4 percent increase over the inventory in March, 2006.

Prices also declined year over year, dropping 0.3 percent from March 2006 when the median was $217,600 to $217,000 last month. (Analysts say that month to month comparisons are useless but the median price was up from $213,600 in February to $217,000 in March)

Data on the sales of new homes was a little more encouraging. According to data jointly released on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development new homes in March sold at an annualized pace of 858,000 units. This is 2.6 percent above the revised February figure of 836,000 but is 23.5 percent below the March 2006 estimate of 1,121,000.

It is worth noting that the estimates for both February and January had to be downgraded significantly as final figures came in. February dropped from 848,000 to the aforementioned 836,000. January new home sales were originally estimated at 937,000 but were changed to 882,000 in the next month's report.

Inventories also dropped a bit. There is currently a backlog of 7.8 months supply at current absorption rates as compared to 8.1 months in February. The actual numbers of homes for sale barely changed - increasing from 544,000 to 545,000; the inventory decrease was based entirely on the up tick in sales. One year ago there was a 6.1 months supply of homes on the market.

Both median and average prices for new homes increased during March. The median price was $254,000 compared to $251,800 in February. The average sales price went from $326,000 to $330,900.

New home sales figures probably didn't have as much influence on the market as did some excellent earnings reports but still the stock mark soared on Wednesday with the Dow closing above 13,000 for the first time in history.