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October 24, 2007
Home Sales Drop a Record 8 Percent
More bad news on the housing front as sales of existing homes dropped a record 8% - the biggest drop since records started being kept in 1999:
The weakness in sales translated into further pressure on prices. The median price - the point at which half the homes sold for more and half for less - fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. Inventories of unsold homes also rose to record levels in September to 4.4 million. At September's sale rate, it would take 10 months to bring those numbers back where they should be.
It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased. The 8 percent decline in sales was bigger than the 4.5 percent decline that had been expected.
Analysts blamed the bigger-than-expected slump on the turmoil that hit credit markets and mortgage markets in August as worries increased over rising mortgage foreclosures.
Those worries resulted in a drying up of the availability of so-called jumbo mortgages, loans over $417,000, which are particularly important in high-cost areas such as California.
"Mortgage problems were peaking back in August when many of the September closings were being negotiated and that slowed sales notably in higher priced areas that rely more on jumbo loans," said Lawrence Yun, senior economist for the Realtors.
Mr. Yun also predicted that the value of existing homes would decrease 1.5% for the year - the first time in 4 decades that would have happened.
It is expected that the Fed will cut rates again when they meet next week in order to keep the US economy from tipping into a recession. The cut should also slightly ease the credit crunch and spur some home buying.