New home prices fall by largest amount in 35 years
October 30, 2006
The last time new home prices dropped this much, Richard Nixon was president and Neil Armstrong had recently returned from walking on the moon.
The U.S. Commerce Department recently released sobering nationwide housing statistics, showing a 9.7 percent drop in new home value from September 2005 to September 2006. The nationwide median price for a new home now stands at $217,100.
The bad housing news comes on the heels of a 2.5 percent fall in existing home prices, the largest decline in records going back nearly four decades.
And experts are warning that housing deflation is not over yet.
“The housing market correction is in full swing but it probably has another year to go before it bottoms out,” said Mark Zandi, chief economist at Moody’s Economy.com. “It is going to be painful because there are a lot of price declines to come.”
Zandi said he was forecasting that prices for existing homes would drop by 3.7 percent in 2007, which would be the first decline for a full year since the Great Depression.
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For many of the formerly hot sales markets along the Northeast coast and in Florida, California and Arizona, the price drops could be particularly severe, given the double-digit price gains in those areas in recent years.
The news had a silver lining, however. The price drops coincided with an uptick in home sales over the last two months, the most recent being a strong, five percent increase. Still, sales volume is down more than 14 percent when compared with this time last year.
The nationwide housing trends are mirrored in the Tahoe-Truckee area, where sales volume slumped by 24 percent in Tahoe and 11 percent in Truckee in the first six months of 2006, according to a Chase International market report.
Now, with winter approaching, sellers are either pricing their homes aggressively in attempts to sell before winter, or taking them off the market and ski leasing them, said Gayle Blair, broker and co-owner of Tahoe Real Estate Group.
But Tahoe often diverges from the national real estate market because so many homes sell as second residences. The local market is still softening along with national trends, she said.
The change does not surprise her.
“I’ve been in the business for 30 years and I’ve seen it go up and down and sideways,” said Blair.
Assist 2 Sell- All Service Realty broker Karen Degney, who has offices in Kings Beach and Incline Village, said her business has heated up this fall after a slow summer. The sales have gone to a mix of second homeowners, full-time residents moving in from out of the area, and locals who can now afford to buy a home, she said.
Shari Chase, president and chief executive officer of Chase International, warned of the market cool-down in the company’s market report released during the summer.
“The period of huge increases in home values has come to a screeching halt,” she wrote in Chase’s most recent market report.
The declines underscore the severity of the correction in a once-booming housing market, which had seen sales of both new and existing homes soar to record levels for five consecutive years, propelled by the lowest mortgage rates in more than four decades.
This year, with mortgage rates rising through midsummer, sales have cooled considerably, with housing expected to trim more than a percentage point from overall growth in the last half of the year.
The debate is whether the slowdown will be enough to push the country into an outright recession. The Federal Reserve, recognizing the weakness in housing, halted a two-year string of interest rate increases in August and left rates unchanged for a third straight meeting on Wednesday.
The Fed, however, gave no indication that it planned to start cutting rates because of the weakness in housing, saying it was still concerned that inflation remains too high.
The 5.3 percent rise in new home sales in September followed a 3.8 percent rise in August and was the biggest one-month gain since an eight percent increase in March. However, sales had fallen for three straight months from May through July.
The rise in sales last month was led by a 23.9 percent jump in the West.
” The Associated Press contributed to this report.