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April 22, 2008
Housing Crisis Continues
Following a nearly 3% rise in home sales in February that raised hopes that the housing crisis was beginning to bottom out, the most recent figures out today show sales declining last month by 2%:
The median price of a home sold last month was $200,700, a decline of 7.7 percent from the median price a year ago. That was the second-biggest year-over-year price decline following a record 8.4 percent drop in February. The records go back to 1999. Some analysts may be too pessimistic (who can blame them). Intervention by the Fed in the mortgage backed securities market appears to have stabilized that sector which may put less pressure on lenders. And the falling value of housing means there are plenty of bargains to be had for those looking for a new home.
It marked the seventh consecutive year-over-year drop in prices, although the March sales price was up slightly from a February median price of $195,600. Economists prefer to compare the prices on a year-over-year basis because, unlike sales, the monthly prices are not adjusted for normal seasonal variations.
The March sales decline, which was in line with expectations, followed a 2.9 percent increase in sales in February. The February rise, which followed six straight monthly declines, had raised hopes that the steep housing correction could be hitting bottom.
However, many private analysts said they do not expect a rebound for a number of months, given the problems weighing on housing from a severe glut of unsold homes to tighter credit standards for prospective buyers and a rising tide of mortgage foreclosures.
Unfortunately, lenders are still being very cautious - and for good reason. There is a huge glut of unsold homes right now and lenders continue to eat bad loans at a record rate. Bank of America saw its income fall 77% from a year ago. Other major lenders are suffering similar fates.
With a nearly 20% decline in sales from a year ago and the freefall in home values continuing, we are certainly not out of the woods yet. However, most of the home foreclosures are limited to a few states - California, Florida, Arizona, and a couple of others. And the Fed shows no signs of changing its low interest policy so that when the market begins to rebound, it will probably happen fairly rapidly.
As a political matter, the housing crisis is fodder for the Democrats. But in reality, by the fall election, housing will probably be rebounding which should blunt its effect as a political issue.