August 14, 2008
Sales of existing homes hit a 10-year low in the second quarter of 2008, while the median price of a single family home fell another 7.6 percent, to $206,500, according to the National Association of Realtors.
Sales were down 16 percent over the second quarter of 2007, while prices declined in 115 of the 150 markets surveyed.
"In many areas with large concentrations of foreclosure sales, homes are being purchased below replacement cost values," said NAR President Richard Gaylord. "Many buyers with long-term expectations are getting exceptional value in the current market. Once the inventory is drawn down, price pressure will return because the costs of construction are rising -- today's buyers are very well positioned to build wealth over time."
A separate recent study by the National Bureau of Economic Research, "Housing Supply and Housing Bubbles," shows construction costs in 2007 were higher than home prices in 33 out of 79 metro areas studied. Because foreclosures and short sales are accounting for about one-third of transactions, the Realtors' group says there is a downward pull to the national median price.
According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage rose to 6.09 percent in the second quarter from 5.88 percent in the first quarter; the rate was 6.37 percent in the second quarter of 2007.
Lawrence Yun, NAR chief economist, said a clear cause-and-effect response has developed in the housing market, with the biggest improvements coming in some of the hardest hit markets.
"The biggest home-sales gains over the previous quarter have been in some of the markets with the steepest and fastest price drops," Yun said.
Compared with the first quarter, existing-home sales increased 25.8 percent in California, 25.0 percent in Nevada, 20.5 percent in Arizona and 10.1 percent in Florida.
"Buyers in these areas are responding to deeply discounted home prices," Yun said.
The steepest declines in single-family home prices in the second quarter were in the Sacramento-Arden-Arcade-Roseville area of California, where the median price of $229,500 dropped 35.6 percent from a year ago, followed by Cape Coral-Fort Myers, Fla., at $178,100, down 33.1 percent from the second quarter of 2007, and Riverside-San Bernardino-Ontario, Calif., where it dropped 32.7 percent to $265,200.
"Each of these areas has seen a strong buyer response in recent months to the big cuts in home prices," Yun said.
Sharp price declines, in excess of 20 percent, also were reported in the Los Angeles-Long Beach-Santa Ana area; the Anaheim-Santa Ana-Irvine, Calif., area; Las Vegas-Paradise; and Phoenix-Mesa-Scottsdale.
In the second quarter, the largest single-family home price increase was in the Yakima, Wash., area, where the median price of $162,300 rose 8.9 percent from a year ago. Next was the Binghamton, N.Y., area, at $120,900, up 8.7 percent from the second quarter of 2007, followed by the Amarillo, Texas, area, where the second-quarter median price increased 7.2 percent to $124,600.
Yun said home price conditions reflect comparisons from 12 months ago.
"Prices having fallen sharply and quickly in very distressed markets, but most or all of the price declines may have already occurred in these areas since buyers have now returned to those markets," he said. "Furthermore, the momentum of buying is likely to continue in light of the housing stimulus package that was recently enacted. About 2.5 million first-time buyers are expected to take advantage of the $7,500 tax credit between now and the middle of next year."
