Wednesday, September 26th, 2007
Housing Sales and Prices Drop As Consumer Confidence Retreats
By Jason Simpkins
Staff writer
The news on the U.S. housing market continues to get worse. And the slump is now affecting the consumer psyche.
Sales of previously owned homes dropped by 4.3% in August, the sixth-straight month sales have declined, the National Association of Realtors said yesterday.
Sales declined at a seasonally adjusted rate fell to 5.5 million units, its lowest level since August 2002. In a bit of good news, the median price of an existing home climbed to $224,500, a 0.2% increase from a year ago. It was the first year-over-year increase after a prices dropped for 12 straight months.
Even so, home prices in 20 U.S. metropolitan markets dropped 3.9% in the 12 months ending in July. An index of 10 U.S. cities fell 4.5% in July from a year ago - the largest drop since 1991, a period of 16 years.
The supply of homes for sale at the end of the month rose to $4.58 million, the most ever. Hoping to unload an abundance of seemingly un-sellable homes, homebuilders have been offering more enticing incentives. The effectiveness of such measures is yet to be seen, but S&P Committee Index Chairman David Blitzer told The Associated Press that severe declines may have finally subsided.
"Maybe the first stage is steep declines, and we’re just about done with those," he said, "The second stage is not much gain, not much loss."
It doesn’t seem as though home sales will stabilize any time soon. Many economists think it may take until well into 2008 before prices fall low enough to put any kind of a dent in the large glut of homes saturating the market.
It may be too late, however, as consumer confidence has clearly been affected. The Conference Board’s index of consumer confidence fell from 105.6 to 99.8 in August. The fall was greater than forecast and has left the index at its lowest point since 2005.
Federal Reserve Chairman Ben S. Bernanke is no doubt monitoring these and other indicators to determine further federal action. According to Joel Naroff, president and chief economist of Naroff Economics, the September employment report may be the most vital gauge to in determining the Fed’s decision.
"If that is soft, then it would be hard to argue the economy doesn’t need more help," Naroff said, "If we keep seeing job gains below 100,000 per month, the Fed will have to step in."
Should home prices and consumer confidence continue to plummet, the Fed may be forced to reduce rates by another 50 basis points by the end of the year, many economists and analysts believe. Others, however, believe such cuts will cause the U.S. dollar to weaken even more, and cause inflation to really take hold in the U.S. economy for the first time since the early 1980s.