Home Prices Down 6.1% from 2007 Levels and Why They Probably Have Further to Go

I took a look at the recent data from the National Association of Realtors and put together a few graphs. They show that home sales have fallen sharply, inventories are up pretty dramatically, but prices have only fallen by 2%. Take a look and see what you think.

The latest data from the National Association of Realtors paints an interesting picture.  According to the data, home sales have declined 46% since their peak in 2005, falling from 7,076,000 units to a seasonally adjusted annualized rate of 4,860,000 in 2008.  The average of national home prices have fallen only 2% from $219,600 in 2005 to $215,100 today.  That fall has accelerated in the past year though, with home prices down 6.1% from 2007 levels.  While sales peaked in 2005, prices peaked in 2006.

GraphofExistingHomeSalesandPrices:2005-2008 

The rise in prices continued even after sales had peaked and so we might expect that the same will happen with sales and prices going down.  To date, we don't seem to have reached a bottom in sales.  The months supply of unsold homes (how many months it will take to get through current supply of unsold homes at current sales rate) is up from 4.5 months supply in 2005 to 11.1 months based on the June 2008 data.  The chart below shows that home inventories of existing unsold homes have risen steadily since 2005.

InvenstoryofUnsoldHomesinUS-2005-2008 

What does this mean?  Probably that either housing prices have to fall further or mortgage rates must come down significantly to spur demand and affordability to work off the excess supply of houses.  Since it doesn't look like mortgage rates are going down, home prices are unfortunately going to have to fall further.

 

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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