Housing Slump 2008: New Home Sales Plunge To Lowest Level Since 1991

WASHINGTON — Sales of new homes plunged in March to the slowest pace in 16 1/2 years as a two-year housing downturn extended into the start of another spring sales season. The median price of a new home in March compared to a year ago fell at the fastest clip in 38 years.

Sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991, the Commerce Department reported Thursday.

The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly hot sales areas.

Some analysts said they believe the slide in sales may be close to ending although they said any rebound is likely to be slow and anemic with prices continuing to fall, possibly until this time next year.

Earlier this week, the National Association of Realtors reported that sales of existing homes also fell in March, dropping by 2 percent, with prices declining on a year-over-year basis by 7.7 percent.

"The start of the spring home buying season is turning out to be a bust," said Stuart Hoffman, chief economist at PNC Bank Corp. in Pittsburgh. "It is much better to be a buyer than a seller right now."

Hoffman said he thought sales would stabilize by this fall but that prices could keep falling until the start of the 2009 spring sales season. Prices are being depressed by the continued huge inventory of unsold homes, a backlog that reflects rising numbers of mortgage defaults which are dumping more homes on an already glutted market.

On Wall Street, stocks rallied Thursday as investors were cheered by first-quarter results from Fort Motor Co. and a sizable decline in weekly applications for unemployment benefits. The Dow Jones industrial average rose 85.73 points to close at 12,848.95.

For March, new home sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.

The overall drop was much bigger than expected and the size of the declines in many regions of the country also took economists by surprise.

"Every region shared in the carnage," said Joel Naroff, chief economist at Naroff Economic Advisors. "These are not soft numbers. They are Depression numbers."

Still, economists said they believed that the extent of the downturn may be signaling that at least in terms of sales, things could bottom out by this summer or by the latest, this fall, as falling prices lure buyers back into the market.

"Sellers continue to aggressively price and market new homes," said Patrick Newport, an economist with Global Insight. "Provided that financial markets stabilize, we still expect their efforts to pay off with new home sales turning in the second half of this year."

Economic growth slowed to a near-standstill at the end of last year as the economy was battered by the prolonged slump in housing and a severe credit crunch that has resulted in billions of dollars of losses at many of the nation's largest financial institutions. Many economists believe the country has fallen into a full-blown recession although President Bush earlier this week disagreed, saying the country was in a slowdown but not a recession.

Consumer sentiment has plunged to recessionary lows as Americans have watched gasoline soar to an average price above $3.50 per gallon nationally.

In other economic news, orders to factories for big-ticket manufactured goods fell for a third straight month in March, the longest string of declines since the 2001 recession, while applications for unemployment benefits fell by 33,000 to 342,000.

The Commerce Department said demand for durable goods dropped by 0.3 percent last month, a worse-than-expected performance that underscored the problems manufacturers are facing from a severe economic slowdown. The last time orders fell for three consecutive months was from February to April of 2001, when the country was sliding into the last recession.

The weakness in manufacturing orders was led by a 4.6 percent drop in orders for autos, a sector hard hit by soaring gasoline prices, and the weakening economy, which have cut sharply into car sales. Orders in the category that includes home appliances fell by 6.6 percent. This industry has been hurt by the two-year slump in home sales.

The Labor Department reported that claims for unemployment benefits fell by 33,000 last week to 342,000. Economists had been expecting claims to rise by 3,000, but even with the improvement analysts said the weak economy is still putting greater pressures on the labor market and unemployment, now at 5.1 percent, is likely to rise further.

Comments

[Tator]

One thing not mentioned on any Liberal site is market forces are not coming in to play on the prospect promised Democrat tax hikes.

Normally, when there is a correction (stock or real estate) and prices fall, investors move in to buy. This is not happening because of the coming Democrat tax increases.

As an investor in all forms of capital building instruments, stocks, real estate,......we stopped buying anything that will be impacted by the Capital Gains tax increases.

Anything I buy today and hold for more than a year benefits from Long Term Capital gains lower taxes. Since we know the Democrats are going to increase this tax we have to reason to buy the surplus houses or anything (stocks) that will produce a profit only to be confiscated by Democrats.

Anything affected by Long Term Capital Gains will be flat until the Democrats raise taxes (or try). Then if they are successful they will stay flat (no incentive to buy). If they fail then get out of the way....their will be buying and prices will rebound.

[joebhed]

The housing facts speak for themselves.
But there's a lot of pie-in-the-sky, rose-colored-glass thinking about the future in some of these comments.
The housing crisis is on point today because it was the wealth-base of the financial charade of the past decade, if not generation.
But it ain't even close to being over!
We are currently waiting for the Alt-A mortgage crisis shoe to drop.
It has started, and is on parallel to where the sub-prime crisis was last summer.
Look at the fallout from the sub-prime mortgages to date.
The Alt-A will bring a doubling to tripling loss of economic value that the sub-prime has brought.
And it will affect people that have a lot more juice in the economy.
For those who think this may be the bottom, or that we are nearly at the bottom, hang on.
We haven't even begun to see the bottom.
This is ONLY in the housing sector.
Every economic sector willbe affected.
In other words, you have to add on the failure of the nation's currency, the incredible growth in the nation's public and private debt, the failure of achieving alternative fuel development in light of $4/gallon gasoline, the necessity for real rises in the prices for all basic goods and the resulting rise in the number of both unemployed and under-employed citizens.
Yeah, there will be some really good deals on the housing overstock.

Capital-gains tax, anyone?

[studlyguy]

This will go on for awhile unfortnately,the house flipping days are OVER,now people are just trying to hold on to their house,and when the bottom does come and is over which I don't see for 2 years,people will buy houses to keep them and banks will be more careful who they loan to,and that will be slow and long process,after this disaster and financial fiasco with housing ,credit, no one will be doing this fraudelent subcrime mess for at least 20 years till everyone forgets what happen last time cause GREED has a short memory.

[MilwaukeeDan]

It's only a slump due to the fact that for the past 8 years, if you had a pulse, you could get a mortgage, that is over. Some made a ton of money and some will lose it all. Middle class wages haven't moved over the last 8 years, but the government used "home ownership" to make you feel like you accomplished something in life (no matter the mortgage size). You are not a "homeowner" until you pay it off.

[GreedyOldPsychopaths]

More like "mortgage owner", unless you miss one too many of those monthly minimum balance due payments.

[thegreatgiginthesky]

Wonderful news. It has not hit rock bottom yet but this is good news for people who are waiting patiently before they get into a home.

[MilwaukeeDan]

gig, with the cost of living going up almost daily(food/fuel), rock bottom might be years away, if we ever recover, and we own our home. We planned on selling it when we retire and downsize, probably won't be worth much then. You have to look at the overall economy, if people don't have good jobs, they won't be able to buy. The last 8 years, the housing bubble was driven by lending to anyone with a pulse, I don't see us going back to those days.

[thegreatgiginthesky]

Yes there will be pain for years to come as we deal with the pain cause by these lending institutions that gave loans to every Tom, Dick and Harry. The job market has really slowed down, but I also think that things will get better down the road. I don't think it will return to where it was when the housing bubble was at its peak, but that is a good thing, it will keep those flppers out of the neighborhoods. This is good for people who have not brought a home and are looking at new construction instead of existing homes, and why wouldn't they. When you can get a brand new home for the price or less than an existing home.