Home sales sink unexpectedly, lowest since 1997
Sales of existing homes sank unexpectedly last month to the lowest level in nearly 12 years as potential buyers worried about their jobs and awaited details of President Barack Obama's plans to stabilize the housing market.
But the banking industry's teetering fortunes and mounting job losses could stall any recovery. Falling prices and low mortgage rates don't make much of a difference for people who are out of work — or fearful of losing their jobs.
The most optimistic outlook is for a spring revival as home prices plummet. Government officials, hoping to spur demand, on Wednesday rolled out the details of a new $8,000 tax credit for first-time buyers. About 40 percent of all home sales last year were from first-time buyers.
Treasury Secretary Timothy Geithner said the tax credit should help provide an "immediate response to the current crisis."
The government response may help, but many consumers are still in wait-and-see mode.
"Buyers are sitting back," said real estate agent Sandra Lipmann of Prudential Centennial Realty in Westchester County, N.Y., home to the upscale properties of many Wall Street workers. "They don't have the full story of what's going to happen in this economy."
Sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million in December, the National Association of Realtors said Wednesday. It was the weakest showing since July 1997. And some analysts don't see sales bottoming out until later this year as prices sink further. Economists had expected sales to rise to an annual pace of 4.79 million homes.
Without adjusting for seasonal factors, sales nationwide fell 7.6 percent from a year earlier. The West was the only region to show increased sales.
The median sales price in January plunged to $170,300, from $199,800 a year earlier and $175,700 in December. It was the lowest price since March 2003 and the second-largest drop on record.
And the Mortgage Bankers Association said Wednesday that applications for new loans and refinances both fell last week as rates inched up.
Sinking home prices and soaring foreclosures have forced major banks like Citigroup Inc. and Bank of America Corp. to record huge losses on the value of their mortgage-related assets.
On Capitol Hill for a second day, Federal Reserve Chairman Ben Bernanke warned lawmakers that the big glut of unsold homes could "put us in real danger" of even sharper declines in home prices.
The Fed chief fielded tough questions about bank-rescue efforts and again spurned speculation that the government may seize control of Citigroup or other large financial institutions.
Asked about Citigroup Inc., Bernanke said nationalization "is when the government seizes the bank and zeros out its shareholders ... we don't plan anything like that."
Wall Street ended an erratic session with a loss. The Dow Jones industrial average fell about 80 points, and the Standard & Poor's 500 index and the Nasdaq composite index also declined.
Some hopes for the long-awaited housing market rebound had returned last month after the Realtors group reported a surge in sales for December. But economic fears are now paramount in the minds of many consumers, and lending standards remain tight.
John Seidensticker, 37, has been trying to sell a two bedroom, roughly 1,100 square foot condominium north of Miami's downtown. He started out asking for $279,000 and has lowered his price by $90,000 but still hasn't found a buyer.
"I can't buy until I sell this one," Seidensticker said. "Half the buyers can't qualify, and there aren't that many buyers out there."
The number of unsold homes on the market fell almost 3 percent last month to 3.6 million, the lowest inventory level in two years, the Realtors group said. But due to the slumping sales pace, it would still take 9.6 months to rid the market of all of those properties, up from 9.4 months in December.
The number of properties languishing on the market likely would be even higher if sellers weren't so reluctant to list their properties as prices sink rapidly, Joshua Shapiro, chief U.S. economist with MFR Inc., wrote in a note Wednesday.
"With supply overhang still huge and mortgage financing difficult to obtain, home prices are likely to decline considerably further in the quarters ahead," he wrote.
Prices have been falling as thousands of Americans lose their jobs every week. Employers took an especially large ax to their payrolls last month, the Labor Department said Wednesday, and the cuts are likely to get worse over the next few months.
Mass layoffs, or job cuts of 50 or more by a single employer, increased to 2,227 in January, up almost 50 percent from the same month last year. More than 235,000 workers were fired in last month's cuts.
The labor market pain persists this week. The NFL said Wednesday that commissioner Roger Goodell has taken a 20 percent pay cut and the league dropped 169 jobs through buyouts, layoffs and other reductions. Spartanburg, S.C.-based textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, and jeweler Zale Corp. said it will close 115 stores and eliminate 245 positions.
As layoffs mount, foreclosures have swamped the housing market — especially in particularly distressed states like California, Florida, Nevada and Arizona. About 45 percent of sales nationwide are foreclosures or other distressed properties.
Joel Rodriguez, owner of Global Investments Realty in Miami, estimates that 70 percent of his business comes from foreclosures, but says sales are picking up. "The banks have finally gotten realistic and started accepting some of the offers," he said.
Lawrence Yun, chief economist for the Realtors, predicted that the new tax credit would help boost home sales by late spring or early summer. Buyers "did not want to jump into the market until they were certain" what the government would do to resuscitate the housing market and that clearly dampened January sales, he said.
But other analysts say the government's actions will provide a far more modest boost, largely because the economic picture remains so gloomy.
Patrick Newport, an economist with IHS Global Insight, said sales are likely to sink further and not stabilize until the summer. Prices aren't likely to hit bottom until the first quarter of 2010 and should remain flat for another year, he said.
"At some point, prices will drop so much that sales will start to pick up," Newport wrote in a note Wednesday. "So far, this has yet to happen."