Homes Sales Fall, Prices Drop

Written by Nickel - 4 Comments

Ouch. Home sales have now fallen for six straight months, and prices experienced a year-over-year decline of 2.2% in September. The median home price now stands at $220,000, down form $225,000 in September 2005. The only bright spot was that the number of homes on the market declined by 2.4% in September, meaning that there is now a 7.3 month supply of homes on the market nationwide. The South was the only region nationwide to report an increase in existing home sales from last month.

[Source: CNN/Money]

Published on October 26th, 2006 - 4 Comments
Filed under: Real Estate
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Comments (scroll down to add your own):

Based on my research (i.e., income, inventory, interest rates, historical data, etc), I expect the U.S. median home price to hold steady to slightly lower for the next 5 yrs. It’s the coastal states like California (median price of $550K) that will experience a huge correction since prices have gone up double digits for the past 5 yrs which is clearly unsustainable from a fundamental and economic standpoint. My prediction is that California will correct roughly 5% each year for the next 5 years at a minimum. After the correction, prices should be more inline with historical trend This irrational behavior is almost identical to the Nasdaq days, except the bust will be longer and painful.
Comment by Alain Wong — Oct 27th 2006 @ 5:30 pm
@Alain:

That’s interesting. Where did you get that research data from?
Comment by Binary Dollar — Oct 28th 2006 @ 1:42 pm
C’mon guys, look at it from a contrarian viewpoint–the perfect time to snap up that investment real estate on the cheap!

I’m only half joking–I bought my home in a “hot” area a couple of years ago, after over two years of searching, and literally the prices went up by 20-40% for comparable homes in that two year search period. Fortunately we already lived in that area, so our selling price went up as well. If we had known what was coming and found the “right” place sooner though, we might have a lot more equity today…

Of course, like the stock market, timing things to find the bottom is quite a trick. Some say these housing “corrections” last about two years on average, but like the stock market it can be hard to predict when you’ve reached the bottom. I would say though that if I were buying but not selling, I’d rather do it in a buyer’s market (and vice versa of course), which for investment real estate is more realistic than when you’re dealing with your primary residence.

Another thing to keep in mind though is housing is different in some ways when it comes to declining prices–many people can choose to simply ride out the downturn by staying where they are. If they’ve recently bought or done a cash-out refinance, they’re more likely to want to want to stay put until the market comes back and they’ve got equity again. In that respect the psychological forces are somewhat different than with stocks–people tend to panic and sell at the bottom with stocks, but the opposite tends to be true with houses.
Comment by Mike — Oct 29th 2006 @ 9:56 am