WASHINGTON (AP) – Sales of existing single-family homes plunged in 2007 by the largest amount in 25 years, closing out an awful year that saw median prices fall for the first time in at least four decades.
The National Association of Realtors reported Thursday that sales of single-family homes fell by 13 percent last year, the biggest decline since a 17.7 percent drop in 1982. The median price of a single-family home fell to $217,800 in 2007, down 1.8 percent from 2006.
It marked the first annual price decline on records that the Realtors have going back to 1968. Lawrence Yun, the Realtor's chief economist, said it was likely the country has not experienced a decline in home prices for an entire year since the Great Depression.
Private economists said the size of the sales plunge and the decline in prices underscored the severity of the housing slump. Last week, the government reported that construction of new homes fell by 24.8 percent in 2007, the second biggest decline on record, exceeded only by a 26 percent plunge in 1980.
"We are closing the book on the worst year for housing possibly since the Depression," said Joel Naroff, chief economist at Naroff Economic Advisors. "I keep thinking a bottom is near, but we haven't gotten there yet."
The year ended on an exceptionally weak note, with total sales of both single-family homes and condominiums dropping by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.
David Wyss, chief economist for Standard & Poor's, said he believed sales of existing homes would continue declining until the middle of this year with prices probably falling for all of 2008.
"When you look at the inventory levels, there are just a lot of unsold homes on the market that we have got to get rid of," Wyss said.
The report showed the inventory of unsold homes did fall 7.4 percent to 3.91 million units in December, but part of that probably reflected disappointed homeowners just taking their houses off the market.
The 13 percent drop in single-family home sales last year followed an 8.1 percent decline in 2006 that occurred after sales had set record highs for five straight years.
That housing boom fueled a speculative frenzy in many parts of the country, luring many investors into the market hoping to buy homes and flip them for quick profits as home prices in those areas soared at double-digit rates. The abrupt end to the boom has been a severe drag on the economy and resulted in record levels of mortgage defaults and the prospect of millions more homeowners losing their homes because they cannot afford sharply higher monthly payments as their introductory mortgage rates reset to sharply higher levels.
The Bush administration brokered a deal with the mortgage industry to freeze the rates on certain subprime mortgages for five years, hoping that will prevent a further cascade of mortgage defaults. The administration and leaders of the House of Representatives also agreed Thursday on an economic stimulus plan in an effort to keep the economy from tumbling into a recession.
Part of the package includes a one-year boost in the limit on so-called jumbo loans that can be purchased by Fannie Mae and Freddie Mac to a maximum of $729,750, up from $417,000 currently. Realtors officials said that increase will help boost sales especially in high cost areas like California, Florida and parts of the Northeast.
The housing market appeared to be starting to stabilize earlier this year but then faltered after the August shock to financial markets, triggered by rising defaults on subprime mortgages, — loans offered to buyers with weak credit histories.
While there is concern that the housing and credit troubles could be enough to push the country into a full-blown recession, the Federal Reserve cut a key interest rate by the largest amount in more than two decades on Tuesday and signaled further rate cuts, possibly as soon as next week. The Fed acted after a worldwide stock sell-off roiled global markets Monday.
The Fed's assurances plus the agreement between the administration and House leaders on a stimulus package spurred a second day of strong gains on Wall Street on Thursday. The Dow Jones industrial averaged finished the day up 108.44 points at 12,378.61. The Dow had risen 299 points Wednesday.
For December, home sales were down in all regions of the country, falling 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.
In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000, the lowest level in four months. Analysts said the claims figure is being distorted currently by seasonal adjustment problems with claims still expected to start rising in coming weeks.