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Home prices to fall for first time since great depression { April 12 2007 } Original Source Link: (May no longer be active)
http://www.chicagotribune.com/business/chi-0704110760apr12,0,1306986.storyhttp://www.chicagotribune.com/business/chi-0704110760apr12,0,1306986.story
Decline projected in prices of homes
1st yearly drop since record-keeping began
By Sharon Stangenes and William Sluis, Tribune staff reporters. Tribune news services contributed to this report
Published April 12, 2007
The housing industry's pratfall will continue through the remainder of this year, as the national median price for an existing home drops for the first time since record-keeping began in the late 1960s, an industry trade group said Wednesday.
In making the forecast, the National Association of Realtors also lowered its 2007 sales expectations for both new and existing homes.
Tighter lending standards and the continued fallout from the subprime mortgage market are to blame, said association spokesman Walter Molony.
Nevertheless, the association's chief economist, David Lereah, expects "2007 to be the fourth-highest year on record for existing-home sales."
Some real estate agents said an extremely cold spring is hampering sales. But housing consultant Steve Hovany of Strategy Planning Associates in Schaumburg said a bigger factor is confusion among potential buyers.
"They see newspaper headlines that make them wonder what is happening to the housing industry, and that is making them hesitant," said Hovany.
He said that in a normal year, half of all home sales take place by mid-May. However, in 2007 the pace of sales is down by about 20 percent in Chicago's suburbs, Hovany said.
"A result is that the home-building industry is shrinking, and that is very painful," he said.
A drop in existing-home prices would be the first since the real estate trade group began keeping records in 1968 and probably the first since the Great Depression, said Lawrence Yun, an economist with the Chicago-based association.
The association is forecasting a 0.7 percent dip in 2007 for the national median price for existing homes after a 1 percent gain last year.
In addition, it predicts a 14.2 percent decline in new-home sales, compared with its previous estimate of a 10.4 percent slide, and a 2.2 percent decline in existing-home sales, worse than its previous forecast of a 0.9 percent drop.
The median price for an existing home will slip to $220,300, while the median for a new home is projected to increase 0.4 percent, to $246,200, the smallest gain since prices fell in 1991.
Home purchases are being derailed as the problems of subprime lenders have led, in part, to increased inventory and weakened demand, Yun said.
Prices falling for months
The Realtors association forecast is "more impressive from a headline perspective than in macroeconomic terms," said Richard DeKaser, chief economist for National City Corp. in Cleveland.
"Year over year, the prices of single-family houses, which is what the NAR measures, have been declining since last August," he noted.
DeKaser expects a price decline would be small and have little overall impact.
"Median prices tend to exaggerate the strength in strong markets and the weakness in weak markets," he said.
Things aren't as bad as national surveys might indicate, said Pat Callan, broker/owner of Realty Executives Premiere in Wheaton.
"I see that buyers have re-entered the marketplace from last fall, when it looked as if they had abandoned it," Callan said.
Listings are coming in stronger than last year, he said, though perhaps not as strong as two or three years ago.
For one thing, sellers "are more realistic," Callan said.
"Some buyers are willing to walk away because there is unsold inventory," he said. "If a home is well priced and in good condition, it is going to sell."
Callan said the houses moving most quickly in the far west suburbs are priced at $350,000 and less. Homes priced a bit higher, up to $650,000, take longer to sell.
Callan said he has encountered buyers who "feel we have reached a bottom in this part of the country and this is a good time to buy."
Effects of subprime woes
Around the country in the last 12 months, at least 40 subprime lenders have halted making new loans, gone out of business or sought buyers amid rising borrower defaults.
Less than two weeks ago, Irvine, Calif.-based New Century Financial Corp., the nation's largest independent subprime lender, filed for bankruptcy.
"We've been getting reports from Realtors out in the field about home closings not going through at the last minute because of loan problems," Yun said. "That impacts all homeowners because it affects prices."
Subprime loans are made to borrowers with a history of missed payments, untested credit or heavy debts. Lenders charge more than with conventional mortgages because of a higher likelihood of a default.
Hovany said that a loss of housing speculators, who until last year were nearly 25 percent of the market, has had a major impact. "The discretionary buyer who was looking at a condo is having a difficult time making a decision, and we can't blame the ice and snow," he said.
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wsluis@tribune.com
sstangenes@tribune.com
Copyright © 2007, Chicago Tribune
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